Dutch pension funds, a major category of investors in global markets and clients to many Luxembourg real estate funds, last year suffered losses on their real estate investments after many years of rising values. Their investments in real estate funds, however, delivered positive numbers.
Data from the Dutch central bank shows that the value of these investments fell by more than 14 billion euro in 2022. Listed real estate in particular fell in value, while in directly held real estate, losses were limited. Due to the increased dollar, the value of holdings in foreign real estate funds in euros even increased slightly.
Dutch pension funds had a total of €158 billion in real estate investments at the end of 2022 - almost 11 per cent of their invested assets. Part of this they hold directly on their own balance sheets or those of related Dutch investment funds (47 billion euros). They also hold real estate indirectly by participation in investment funds abroad, especially in real estate funds (67 billion euro). Finally, they invest in ‘listed real estate’. These are listed companies that manage real estate (44 billion euro).
Of the net €14.6 billion loss suffered by pension funds on their real estate investments in 2022, €15.1 billion concerned investments in listed real estate (-22 per cent of the opening balance sheet). These losses manifested themselves early in 2022 with a peak in the second quarter. The losses were still mitigated by exchange rate effects, especially the increased US dollar, without which the loss amounted to €17.9 billion.
Positive numbers for fund investments
On directly held real estate, losses were limited to €0.7 billion (-1.5 per cent of book value). On real estate funds, a positive value gain of €1.2 billion, or 2.2 per cent, was recorded over the full year. This gain was entirely due to the above-mentioned exchange rate effects; the pure price effect amounted to -0.4 billion euro.
Price formation plays an important role in the differences in price development per type of investment property. The price of listed real estate is determined daily on the basis of supply and demand. Here, market information and changed future expectations are directly reflected in the price. Prices of units in investment funds generally react less quickly, especially if they are so-called closed-end funds, where investors cannot exit at short notice. The price development of directly held real estate also lags, as valuation often takes place at several moments a year.
Pension funds’ real estate held directly and indirectly through related Dutch investment funds is relatively often residential. Less than a third concerns offices, retail properties and other real estate. Both almost entirely in the Netherlands.
No figures were available on the type of property held indirectly via foreign property funds and listed property. However, their geography is known: the property funds and listed property companies concerned are largely foreign, largely in the United States.
Real estate losses for Dutch pension funds in 2022
Source: Dutch central bank DNB.