The figures followed a day after an analysis from WM, the Edinburgh- based fund management performance specialist, showing pension funds failing to match the return achieved by the FTSE All Share Index in the first quarter of this year. According to WM, pension funds only managed a 4.6 per cent return on their UK equity holdings in the three months to March, compared with a 5.3 per cent return from the market as a whole.
The two surveys are bound to fuel concerns that expensive fund managers are failing to earn their keep and they could accelerate the trend towards index-tracking funds. These attempt no more than matching an index but at a considerably lower cost than actively managed funds.
Derek Casey, head of Baring Houston's research department, said: "We are trying to put direct property performance into context. These figures add to the current debate about the spread of institutional portfolios, and suggest that property returns are vastly underrated, and that institutions are surprisingly underweight."
According to the research, the balance of institutional portfolios represented by direct property holdings has fallen from 11.3 per cent in 1990 to just 5.2 per cent last year. That has been despite a 9.6 per cent compound growth in the total return (capital gain plus income) from property in the last 10 years.
That performance put property in fourth place behind UK and US equities and UK bonds but ahead of UK cash, European equities, index linked gilts and other overseas equities. Despite their relatively poor showing, overseas equities now account for a larger proportion of institutional portfolios than six years ago and the balance given over to UK bonds has risen sharply from 11.2 per cent to 14.7 per cent.
According to Baring Houston, that leaves institutions particularly badly placed this year, when good growth in GDP is expected to result in a good year for property. In 1987, when GDP was strong, property outperformed all its main competitor classes by a wide margin. Property returns were 26 per cent compared to 8 per cent for UK equities, 15 per cent for gilts and a fall of 9 per cent for overseas shares.
The chances of that sort of performance being repeated this year were highlighted by figures this week from Land Securities, Britain's largest landlord, which showed a 13 per cent rise in net assets as rental growth in good quality buildings took off.
If property enjoys another bumper year, funds will fail to enjoy the benefit thanks to their reduced weightings. They are also much more heavily exposed to equity markets which, after strong runs on both sides of the Atlantic, look vulnerable to a correction, especially if the Chancellor makes widely expected changes to the tax credits that gross funds enjoy on their dividend income.