Investors stick with property, infrastructure

A condominium construction site is seen in downtown Montreal, July 13, 2009.

LONDON (Reuters) - Institutional investors are sticking with their allocations in real estate and infrastructure despite the financial downturn that has seen valuations drop in the last three years, industry heads said.

At the Reuters Real Estate and Infrastructure Summit this week, senior executives said the two alternative asset classes have kept their appeal in the face of a sovereign debt crisis that has clouded the economic outlook and dented the public works program of many countries.

"We are competing at the multi-asset allocation table for capital. That is reviewed on a regular basis and that has to be a global, thorough and dispassionate process," Prudential's (PRU.L) PRUPIM managing director, Martin Moore, said on Wednesday.

"Even if we think the property market is looking relatively good-value, if the equity market looks better-value, then the money gets allocated there. But the appetite seems to be moving toward increasing exposure to property rather than decreasing."

This sentiment was echoed by infrastructure investment fund CP2's managing director, Peter Doherty, who said that infrastructure also benefited from this trend.

"What we are expecting is that as people realize that equities are not going to perform to long-run averages, that they will be looking for a move to more real assets. That will be alternatives, like real estate, timber and infrastructure," Doherty said.

Investors however are likely to be more selective about the specific markets within the real estate and infrastructure sectors to which they are exposed, looking to jump on bargains when valuations have become too low, industry experts said.

"This is the time for core markets and core investments ... where you have enough liquidity, and you can go in and out quickly," said Matthias Danne, who oversees Dekabank's real estate businesses.

Australian fund manager Industry Funds Management (IFM) also stressed the need for well-priced acquisitions, adding that fears over quantitative easing could boost the inflation-hedging allure of alternative assets such as infrastructure.

"There is more of an inventory of assets in the market than was the case two or three years ago. There's more opportunity to buy high-quality assets at appropriate and attractive returns," IFM's global head of infrastructure, Kyle Mangini, said.

But when it comes to comparing real estate and infrastructure in terms of asset allocation, executives from each industry unsurprisingly backed their side, reflecting the differences in returns, risks and investment horizons associated with the two asset classes.

"That's easy, property shares" said Chris Grigg, head of British Land (BLND.L), when asked. "I can't speak for everybody's shares obviously, but ours are trading a discount, have a great dividend yield and good prospects for the future."

CP2's Doherty argued that risk aversion would prevail and that investors would seek returns that are solid, if not as high, as bridges. "I think there'll be a move from real estate to infrastructure," he said.

"Infrastructure has got a lower volatility of earnings, is more reliable. If we are in an uncertain world, where do you want to bias your portfolio?"

(Additional reporting by Sinead Cruise, Daryl Loo and Andrew Macdonald in London, Sonali Paul and Eriko Amaha in Sydney, editing by Matthew Lewis)