REAL ESTATE - Germany's NAEV, a €7.75bn medical pension fund, will expand investments in real estate investment trusts (REITs) and other real estate securities over the next three years, says Hermann Aukamp, NAEV's director of real estate.

NAEV's total exposure to real estate was 14.1% of assets on September 30. Of that exposure, one-quarter was REITs and real estate securities based in Europe, the US and Asia.

Another 60% of the exposure - €666m - was direct holdings in German real estate and the remaining 13.5% was European institutional funds.

Yet Aukamp told an industry conference that by 2010, NAEV would, for REITs and real estate securities, target an exposure approaching that what it currently has for direct holdings and vice versa.

"In the future, direct real estate investments will be replaced by indirect ones, including REITs and shares. I cannot tell you exactly how high it will go, as this depends on the market," he told last week's Pension Fund Investment World Congress in Frankfurt.

Meanwhile, NAEV plans to maintain the current level of exposure to European real estate funds.

As an example of NAEV's future approach to real estate investment, Aukamp said the fund had recently acquired stakes in IVG Immobilien and Deutche Immobilien Chancen, two listed real estate firms. The stake in IVG, Germany's leading provider of real estate fund for institutional investors, is just under 5% and the stake in DIC is around 10%.

Asked whether NAEV also would invest in German REITs, Aukamp replied: "As we don't know the full details for German REITs, we are still waiting for them."

The German government plans to legalise REITs from January 1. But the legislative process in Berlin could be held up by a row within the ruling coalition of Conservatives and Social Democrats over whether to include residential property in the REITs or not.

A desire for better diversification and returns is what is behind NAEV's plan to cut direct holdings in German real estate and to invest more in listed vehicles. Past weakness in the German market forced it to write down the value of its holdings by €75m earlier this year.

But Aukamp stressed that NAEV was now well positioned in Germany, with properties in Düsseldorf, Cologne, Berlin, Hamburg and Munich.

"Thankfully, we were able to sell our properties in Frankfurt and we now are overweight in the cities of Hamburg and Munich, which each have a robust local economy," he told the conference.

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