Property in the Nordic region saw a surge in total returns last year, in part driven by local economic hot spots such as Stockholm. But will this trend continue? And what of the regional peculiarities?
Sweden remains the key market, and represents the bulk of the region’s investible universe for Lindberg. There are only a few companies in each of the other markets worth following, and the portfolio currently numbers about 20 stocks. Fondförvaltning classifies its property fund as “high risk”.
Although Lindberg has the option, crossing borders is not necessarily straightforward. For example, Norwegian property firms traditionally carried more debt on their books, he says. This suited a local approach to risk. However, more recently there has been a trend for Norwegian companies to adopt a model similar to Swedish and other European markets, reducing the leverage.
“It is also a different fund in that it can invest in construction companies,” Lindberg says. The mandate was written in the 1990s, when such companies had more buildings on their own books. Ucits is another issue to take into account when investing collectively in Nordic property. Lindberg notes that his fund is benchmarked against the Carnegie Property index. The latter includes some constituents with more than a 10% weighting, while the fund has a 10% limit on holdings in line with the 5/10/40 Ucits rule.
“The rule provides some protection for investors, but on the other hand limits investments in individual companies that may be performing strongly,” Lindberg says.
Switching troubles
Finally, like other popular funds in Sweden, Lindberg’s has been hit by the fund switching problems of the premium pension platform operated by the Swedish Pension Agency (Pensionsmyndigheten) as previously reported in InvestmentEurope (issue 13-26 April).
Less certain is what this popularity means in terms of attraction to property as an asset class. Lindberg says he has not seen any particular statistics showing a trend for investors in Sweden to increase their exposure to property: a nod back to the point made by Rotsman. However, he adds that the growth of a fund such as his at least suggests that there is growing interest in property. He is keen to note the historical insurance company mantra that investors should put 10-15% into property.
One way the market could be growing without domestic providers noticing more demand is because of growing appetite to invest in property outside the region via foreign asset managers. The UK’s Legal & General and Standard Life Investments are among those tapping into demand for geographic diversification from investors in the region.
In L&G’s case, it is predominantly about offering UK property to investors from the Nordic region. For SLI, it is more about the broader European or global property offering.
Asa Norrie, joint head of European Business and head of Nordic Region at Standard Life Investments, says that the investors she meets are looking for direct property and global exposure.
But, like Lindberg, she notes the importance of differentiating
between the markets. She suggests that the Finns tend to prefer a blend of direct investments, estate assets and funds, while the Swedes and Danes are keen to have listed property securities. Finland is also noticeable for an apparent willingness to put property at the core of long term allocation.
However, finding suitable local investments on behalf of local investors is challenging because of valuations and tightly held markets. The SLI property team has on several occasions identified interesting sites, but has not been prepared to pay the prices sought.
But this in itself could be a reason local investors would look for a broader European opportunities. As she argues: “It’s a perfect diversifier to existing investments.”
