The outlook for property from a funds management perspective: A dissertation submitted in partial fulfillment of the requirements for the degree of Master of Property Studies at Lincoln University

Abstract

Property as an asset class used to traditionally comprise a significant part of the investment portfolios of major institutional investors and fund managers. Over the past decade there has been a global trend in the funds management industry toward a reduction in the place (or importance) that property occupies relative to other asset classes. This trend has also been apparent in New Zealand where the average allocation of funds to property has fallen to around 5% of portfolio funds under management, which is generally in line with that of the US, UK and Australia. This study found the single biggest reason for the decline in the allocation of investment funds to property was simply that the disadvantages of inclusion of property in a mixed asset investment portfolio outweighed the advantages. There was a general consensus of opinion among the fund managers that property would continue to play a part in their investment portfolios and the allocation of funds to property would stabilise around current levels. This study found that the drift away from direct investment in property to indirect investment will continue with smaller fund managers in particular favouring exposure to the property sector via indirect investment. Also investment in global property investment vehicles which offer the benefits of exposure to overseas property markets will feature prominently in fund managers future investment in property. A further trend will be a continued shift of direct property investment funds out of the commercial office sector and into non-traditional areas such as infra-structural assets eg hospitals, prisons and educational facilities.