Real estate investment funds “channeling” pension funds’ property investment: the financialization of pension funds’ portfolio management and its impacts on the Brazilian cities

Authors: Maira Magnani*, Universidade Federal Fluminense
Topics: Economic Geography, Urban Geography
Keywords: REITs; Pension funds; policy-making; real estate market; geographic pattern
Session Type: Virtual Paper
Day: 4/9/2021
Start / End Time: 11:10 AM / 12:25 PM
Room: Virtual 38
Presentation File: No File Uploaded

By examining the real estate portfolio of Brazilian pension funds, we observed a recent trend in favor of investments made through financial vehicles, mainly and almost exclusively using REITs. This trend is recent and has some key implications for the way institutional money is channeled into the built environment. As we show, the growth of REITs in Brazil in the last year (about 23% of liquid assets) is strictly related to the intense work, and also policy-making, of the financial industry in capturing the property investments of pension funds (one of the largest landlords in Brazil, owning over BRL 30 billion, USD 6 billion). In this research, I highlight some aspects that reveal that the financialization of pension funds' portfolio management is strongly linked with the growth of REITs in Brazil: the first is a recent regulation concerning pension funds investments that encourages, through the prohibition of direct property ownership, investments using REITs; and, second, the strong incentives for "outsourcing" to REITs the real estate portfolio of pension funds as a means of promoting a spatial diversification, thus enabling risk control. Furthermore, regarding the geographic pattern of investments, it was possible to observe that institutional money channeled into REITs is concentrated in the states with the most dynamic economies and markets, São Paulo and Rio de Janeiro; and are channeled into market segments whose function and use of properties limit the participation of different types of tenants, other than large companies.

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