Brexit Risk Prompts $113 Billion Fund to Shun U.K. Property

(Bloomberg) -- One of the biggest Nordic pension funds is shunning the U.K. real estate market after adjusting its portfolio for the risk of a no-deal Brexit.

Anders Damgaard, chief financial officer at the $113 billion PFA Pension fund in Copenhagen, said the U.K. now looks “particularly risky.” PFA won't raise its exposure to real estate in Britain until there's more clarity on how Brexit talks will end, he said by phone on Monday.

The decision to avoid British property comes even as Denmark's biggest commercial pension fund is trying to expand its real estate portfolio. In August, it spent more than $1 billion on property in Germany, and PFA wants to increase its real estate portfolio to more than $9 billion.

PFA made a return of 4 percent on its investments in the first nine months. It lost money on bonds but generated 6.3 percent on real estate. The fund is preparing for potential market unrest by stocking up on alternative assets, and Damgaard says PFA has “made a substantial shift into defensive and stable stocks.”

“Then there's also the unlisted investments that are much less exposed to these risk factors.” But PFA is “staying away from slightly toxic investments like long-term U.K. investments or Italian government bonds,” he said.

“I think everybody's working under the assumption that it will be a hard Brexit,” but just “hopes it won't happen,” Damgaard said.

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Damgaard underscored PFA's commitment to doing as much in-house investing as possible to cut costs. The fund does all its Danish real estate investing directly, and has started doing the same in Germany, he said. It's looking into a similar model for France.

“The strategy is to do more direct investing, where we feel we have the skill set,” he said. “And for now that's in Denmark and the EU.”

To contact the reporter on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net;Emma Ross-Thomas at erossthomas@bloomberg.net

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