Pensions: Real-estate speculators?

Reporter: Vested staff

This week’s Vested Suggested features stories that the team at Vested is reading and thinking about to begin the week.

Taking the risk: It is somewhat noteworthy that U.S. pension funds are turning back to real estate investments in a bid to close funding gaps. But it is extraordinarily noteworthy to dig in to what, exactly, they are buying.

In short, the real estate assets pensions increasingly crave are of the riskier variety. Fund investments in the construction of new properties designed to be sold later for a profit are up sixfold over the past 10 years, while allocations to real estate assets that produce income quicker are flat.

“While core real estate holdings derive most of their earnings from rent or other income thrown off by a building, [these] opportunistic investments typically involve constructing or overhauling something the pension fund hopes to eventually sell at a profit, sometimes taking on debt to finance construction,” explained Heather Gillers at the Wall Street Journal.

This is not the same playbook that ended up driving losses in the aftermath of the Great Recession, and opportunistic real estate investments are not mortgage-backed securities. Still, if you squint, the resemblance might seem too close for comfort. Is this type real-estate speculation really a piece of the solution for funds facing gaps?

Meet the new banks: The ten largest banks are projected to lose $159m in deposits to smaller, more-nimble competitors over the next year, according to consulting firm CG42. Why? “The persistent unpopularity of big banks has been a boon to the newcomers. And they are helped by a new attitude among financial regulators who have grown more comfortable with online banking and young customers who have no hesitation about cashing a check or sending money on a phone.”

Let’s check in on Brexit: The next shoe to drop for a no-deal Brexit — the outcome that businesses really, really want to avoid — would be for Parliament to vote down Prime Minster May’s withdrawal proposal. This is precisely what prominent risk consultancy Eurasia Group says is highly probable. The vote is expected on or around Dec. 11.

Bitcoin is below $4,000 now: Yes, investors in Bitcoin and other digital currencies have been absolutely pummeled with losses over the past year, and no, no one knows exactly what is fueling the free-fall. But here’s something new: Cryptocurrency miners, the outfits that solve complex equations to generate new digital coins, seem to be losing interest. The amount of computing effort expended by miners, known as the hash rate, rose for much of the year, suggesting people remained optimistic prices would recover, but has been falling sharply in recent weeks.

“If the miners stop mining, bitcoin will not function…and the overall market will lose confidence. If there is no confidence, people will freak out and sell even more,” said one source.

But: Ohio has said businesses can pay taxes with Bitcoin, becoming the first state to do so.

New ventures: South African financial services company Discovery Limited is known by many as an insurance provider that partners with technology firms to get policyholders discounts on consumer technology that has a potential health benefit, such as the Apple Watch. Now, it’s looking to launch (paywall) the world’s first behavioral bank, which would operate on the principle that healthful life habits and responsible financial behavior go hand in hand.

Read:4 Trends Shaping the 2019 Financial Communications Landscape,” by our UK CEO, Elspeth Rothwell.