- Negative bond yields leave managers searching for returns
- Alternative investments have gotten even more alternative
Three years ago, Amsterdam’s mayor asked a roomful of pension fund managers if they’d be willing to invest in the regeneration of his city’s notorious red light district. Two lonely hands went up.
The same question today might have triggered a bidding war.
“In the current market, everyone in that room would have raised their hands,” said Boris van der Gijp, a director at pension fund adviser Syntrus Achmea Real Estate & Finance, who attended the event. “But at that moment, there were not that many parties who would even assess this kind of deal.”
In an era of record low interest rates and aging populations, the most risk averse of institutional investors are now buying assets that would have once seemed inconceivable.
With much of their bread and butter -- government bonds -- yielding less than zero, the pursuit of a stable income has turned Europe’s pension funds into anything from landlords of Dutch sex shops and British bingo halls to investors in lotteries in Gibraltar. The retirement savings for employees of the British Broadcasting Corp. are helping pay for a new sewage tunnel in London, while Pension Insurance Corporation bought Virgin Atlantic debt that’s backed by landing slots at Heathrow Airport. Germany’s Versicherungskammer Bayern even looked at investing in refugee shelters earlier this year.
“Pension funds really need income at a time when yields are low so they are casting their net quite widely,” said John Walbaum, head of investment consulting in Edinburgh at Hymans Robertson, which advises pension funds. “The days of just buying equities and bonds and nothing else are gone. They need to generate a fixed pattern of cash.”
Up for grabs in Amsterdam back in 2013 was a stake in a portfolio of small buildings, many of which were being rented out to brothel owners, sex shops and coffee shops where more marijuana is sold than hot drinks -- all of which are legal. The city had been courting around 30 investors since 2009, though none of them followed through because of the risks. At the conference, Mayor Eberhard van der Laan then challenged them to step up.
The two interested parties were pension funds representing Dutch agricultural workers and employees of Rabobank Groep, the second-largest lender in the Netherlands by assets, according to van der Gijp, who is advising both.
Money going anywhere near Amsterdam’s housing market would have been enough to raise eyebrows after the crash of 2008, let alone buying a building that may have been used for prostitution. Their willingness to consider a deal was telling of the pressures that were emerging when a 10-year Dutch government bond yielded just over 2 percent. Today, it’s near zero.
The funds agreed in July this year to acquire a 35 percent stake in a portfolio of about 100 buildings for 60 million euros ($66.2 million). The terms stipulate that no property is allowed to be used for prostitution or drugs, but shops selling sex toys are okay, at least until the lease runs out.HT: naked capitalism
The assets at the time were only expected to yield a “few hundred basis points” at best, but it was the rights to more lucrative residential developments outside the city center that secured the deal, van der Gijp said....MORE