Brexit Uncertainties Put $57 Billion Fund Off London Real Estate

A $57 billion Finnish fund that’s increasing its real estate holdings said there’s one market it’s definitely not touching, and that’s London.

The simple reason behind that decision is Brexit, according to Mikko Mursula, the head of investments at Ilmarinen Mutual Pension Insurance Co. His team has opted to skip London opportunities it would once have considered because the risks associated with the U.K.’s confusing exit from the EU are too big, he said in an interview.

“I think it’s fair to say Brexit made us take a couple of steps backward,” Mursula said in Helsinki on Thursday. “Too many moving parts, that’s the biggest reason for us. Too many uncertainties. We really don’t know what will be the political outcome, what will be the real outcome at the general agreement level.”

Ilmarinen has about 15 percent of its portfolio in real estate, and could raise the share to about 20 percent. A fifth of that is outside of Finland.

Since the Brexit vote in June 2016, Ilmarinen has bought real estate in Amsterdam, Berlin, and the U.S. It also has holdings in Brussels and Frankfurt, and acquired about 50 percent of a new office property at the heart of Manchester in late 2017. But investing in the U.K. requires getting “a higher risk-reward than investing in Brussels and Berlin and Frankfurt,” Mursula said.

“We ended up at higher yields from an investor perspective than we would have ended up with in London,” he said, adding the quality of the building and its tenants helped improve its appeal. “In this case, it looked much more attractive than a couple of those London opportunities we’ve been going through.”
Source: Bloomberg

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