In the latest episode of BossCast, Blackstock Consulting’s Andrew Teacher sat down with Alecta’s Frans Heijbel to discuss the Swedish pension fund’s strategy in real estate.

You can listen to this podcast via Apple Podcasts or Spotify or SoundCloud or listen to it through the player below:

According to Frans Heijbel, head of international real assets at Alecta, when it comes to build-to-rent: “The UK market has huge potential, but it lacks larger platforms, and I think increasing the number of investors in the market can realise that.”

In 2020, Alecta became the first Swedish pension fund to exceed SEK1 trillion (£81.8 billion) of assets under management.

The pension fund sold all of its US and UK direct real estate portfolios for around £2 billion at the end of 2016 to Blackstone and Goldman Sachs, with Heijbel pointing to the valuation of the assets at the time as a key motivator in this decision.

Alecta has since re-entered the UK real estate market and is now best known for its progressive stance on build-to-rent (BTR), having diversified its investments into platforms like Delancey Oxford Residential (DOOR). With Western European residential moving from an investment market to one driven by income, Heijbel says: “We saw that the way to maximise performance was to create a platform. You get scale benefits, you get size benefits, you’re better at understanding the tenants’ needs, and you create something that is attractive.”

In terms of the ease of investing in UK build-to-rent, Heijbel suggests: “Some institutional investors struggle to find the right format of investing. Once you have structures that are open for more capital, that will help. I think that is happening, but there is plenty of room for growth.”

Outside of the UK’s comparatively young BTR market, Alecta has invested heavily in Heimstaden Bostad, Europe’s second-biggest residential landlord with an expanded portfolio of €27.5 billion. Speaking about Alecta’s experiences in Europe, Heijbel says: “What you will find is a market that is extremely fragmented. There are probably around 80 million units and although we are now the largest private landlord, we only own about 0.2 percent of the market.”

Heijbel points to the need for housing to attract talent to larger cities, with build-to-rent having a key role to play. Underlining this problem, streaming giant Spotify famously threatened to pull its headquarters from Heijbel’s native Stockholm due to a lack of available housing for its employees.

“Even in the UK, you hear about large corporations that are actually not thinking about establishing their headquarters in London because they don’t think they will find housing for their staff,” Heijbel explains. “On the other hand, that might benefit the regional cities to some extent. But I think every city needs to look at this very seriously because you need a young generation to be able to grow businesses.”

Outside of residential for rent, another of Alecta’s focuses is life sciences, having invested $780 million into US life science and healthcare real estate in 2019 and 2020. Heijbel says, “The real estate is to some extent much more resilient than normal office buildings, because the drivers for the tenants are very different from the drivers of the general economy.”

In terms of predictions for ESG, Heijbel says: “We have a lot of clear indications that there’s going to be a two-tiered market for green buildings versus brown buildings. You don’t want to be behind there because then you might end up with an empty building.”

As a result, ESG will be a central priority for Alecta in 2022. “We are continuously trying to understand how ESG can either make an argument to change anything in our strategy or change any view on our existing holdings. Because I think that’s where the risks are.”

You can listen to this podcast via Apple Podcasts or Spotify or SoundCloud or listen to it through the player above.