Denmark’s PFA set to double Asia property allocation

The current share of investments from Denmark’s largest commercial pension fund does not match the growth potential of the region, according to its real estate head.
Denmark’s PFA set to double Asia property allocation

PFA, Denmark’s largest commercial pension fund, is set to invest roughly another $1 billion in Asian bricks and mortar in the coming years.

As of June-end, PFA's real estate allocation made up €9.5 billion ($10.5 billion) of its total assets under management of almost DKK585 billion ($86.4 billion), with the Asia-Pacific region accounting for 9% compared with the US on 19% and Europe excluding UK and Denmark on 16%.

“As a share of our total real estate portfolio, our Asia exposure is too small. It should at least reach the level of our Europe and US, so it will need to double its size,” Michael Bruhn, head of real estate at PFA, told AsianInvestor.
Michael Bruhn

“We don’t work with a specific time horizon, but we have a substantial amount of capital that we wish to get exposed to Asia,” he said. “At the same time, we are a prudent investor; we only invest when it makes sense.”

The UK makes up 8% of its real estate portfolio with another 5% in global commingled funds and the rest invested in Denmark. It is this latter domestic allocation that is expected to give way to more Asian investments.

“When you look at the fact that Asia is a third of the global real estate market then it would peculiar if we don’t seek to have a relatively fair chunk of our portfolio there when we seek to create a globally diversified portfolio. And we recognise that the growth is higher in Asia than in US and Europe,” Bruhn said.


PFA, even so, has a preference for Asia's more developed and institutionalised real estate markets and ruled out making investments into potentially faster-growing emerging countries in Southeast Asia.

Bruhn disclosed that the pension fund already holds property in Korea, Japan, China, India, Hong Kong and Singapore – as well as in Australia and New Zealand.

Much of that is via its investments into global and Asian commingled funds with asset managers such as Morgan Stanley and Hong Kong-based PAG.

But PFA has also started to invest more directly and strategically, to gain exposure to some of the region's megatrends such as ecommerce and data storage. These investments are done alongside like-minded asset owners, or their real estate management arms, and with operating partners with specific, regional know-how.

“When we are looking for investments outside our domestic market in Denmark, I don’t run around with a Sherlock Holmes cap on and think I can do it better than the locals,” Bruhn said. “We always have some sort of local partner, whether it is a developing partner or an operating partner.”

Among PFA's existing investments in Asia are data centres with Singapore’s Keppel Capital and its private fund management arm Alpha Investment Partners, and logistics buildings in China with Ivanhoe Cambridge, the real estate arm of Canadian pension fund Caisse de dépôt et placement du Québec, and Australian specialist Logos as the operating partner.

PFA also co-invested with PAG in January, buying the office asset Mapletree Bay Point – renamed International Trade Tower – located in Hong Kong’s Kowloon East district. PFA made a DKK1.3 billion sidecar investment to PAG’s fund, taking an almost 40% stake in the 19-storey building completed in 2017, Bruhn said.

To increase PFA’s reach in Asia, Bruhn in October visited Seoul and Beijing to meet with institutional investor peers, with the aim of establishing partnerships into global real estate markets. On October 4, the first partnership – with Korea’s Public Officials Benefit Association (Poba) –  was finalised for investments into European real estate.


Since late-2015, PFA has been working on growing its portfolio of unlisted investments, including real estate as a division of its own under Bruhn. Over the last three years, PFA has invested DKK32 billion in real estate, making its real estate portfolio larger in both size and share of AUM than the bigger Danish state pension, ATP.

As of end June 2019, ATP’s total AUM was DKK1,026 billion, of which real estate investments made up DKK23.5 billion.

In an investment environment characterised by historically low interest rates and an increasingly insecure equity market, PFA has sought to incorporate other stabilising elements to help deliver solid long-term returns. Bruhn’s global plans are backed by Allan Polack, PFA's group chief executive.

Allan Polack

“PFA looks into the future megatrends for our property investments and has accumulated a diversified portfolio allowing PFA to take part in ensuring both an all-round housing supply of rental properties in growth cities across Denmark and in international developments within shared office concepts and support of increased ecommerce,” Polack said in October.

“In coming years, we will focus more of our attention on other countries than Denmark, among these Europe, Asia and the US. Properties are stable and long-term investments and are therefore an important element for generating strong pension savings for the customers,” he said.

The net return after hedging costs of PFA real estate investments was 8% in 2018. In comparison, the general return for the year was a negative 6.1%, dragged down by the poor performance of its European and emerging market equity investments.

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