Property has traditionally played a secondary role as an investment class at the Public Investment Corporation (PIC) and accounts for only 1% of its assets under management.

But that is about to change. With Wayne van der Vent having been appointed to head the property division, the bar has been raised considerably.

Van der Vent, who joined the PIC from asset managers Futuregrowth, wants to see the percentage of total assets held in property raised to 5% over the next three years and to 10% thereafter.

Those are ambitious targets - it means the property portfolio will have to be lifted from its present level of R3,3bn to R20bn (at current prices) over the next three years. To achieve this without disrupting the property market or crowding out the private sector and while fulfilling the PIC's economic mandate at the same time, is a big ask.

Van der Vent is aware of the challenges but he has two things going for him: the muscle and deep pockets of the PIC; and an unconventional approach to property investment.

At Futuregrowth he oversaw the group's Community Property Fund (CPF), which was the first fund to invest in retail shopping centres in rural areas and SA's townships. The CPF is now worth R520m and has investments in 13 shopping centres around the country, the latest being the Kanyamazane Centre in Nelspruit. The PIC has R150m invested in the CPF. "If we want to build a R20bn portfolio we will have to proceed extremely cautiously and have an exposure across the various property sectors - from listed investments to office and retail."

He says the PIC's approach will differ markedly from that of the private sector in that the corporation, as a manager of pension fund money, has a longer-term investment horizon. "We need to move forward with a bit of circumspection and take a medium- to long-term investment view," he says.

There are other constraints he is facing in his expansion drive. He knows the PIC cannot drive the R20bn investment activity on its own. "There are resource limits and we need to involve funds like the CPF in achieving our investment target. These funds will be the building blocks of our portfolio."

Secondly, the property market cycle is at the top end, so the PIC could end up paying expensive rates for its investments if it embarked on a rapid and immediate buying spree. "Property as an investment has had a good run, particularly listed property groups, but I believe there are still good opportunities to be had if you look carefully," he says.

A final consideration for Van der Vent's investment strategy is that the PIC, acting on the investment mandate of its clients, needs to be able to match the liquidity needs of its customers. "I cannot put the pension fund at risk so I need to ensure that at any stage we can liquidate our investments," he stresses. "This dictates that not only must we be able to buy property at a good price and add value, but we must also be able to sell at a good price. Properties at the end of their lifecycle are therefore a definite no," he says.

Though good commercial returns are one pillar of his investment strategy, he wants to match this with the country's development priorities.

"Achieving good returns and promoting socioeconomic development are not mutually exclusive," Van der Vent says.

Over the past five years the CPF has delivered an average annual compound return of 15,4%. In the year to end September 2005 the return was 20,7% as average occupancy levels rose to 70% at the centres. The social impact is significant, with the 13 shopping centres employing more than 4000 people and providing retail services to about 8m people in largely impoverished and underserviced areas of the country. Furthermore it also provides an opportunity for the development of local entrepreneurs.

Even if more development type investments do not deliver "killer returns", a balanced property portfolio should be able to make up for this with higher returns in other segments, Van der Vent says.

His growth strategy sees the PIC's property investments divided into six major silos: rural and township shopping centres; urban shopping centres; JSE-listed properties; government accommodation and leases; office developments; and strategic investments.

Van der Vent says he does not foresee the PIC investing in residential property developments in the near future.

The rural and township shopping centre investment strategy includes its investments in the CPF but also its direct holding in Phalaborwa and four centres in former homelands - Ga-Rankuwa, Central City in Mabopane, Temba City and Megacity - which it inherited after their reintegration into SA.

These properties are valued at R800m on the PIC's books and it is possibly spending R157m to refurbish them and address their recent underperformance.

The PIC is also a 40% shareholder - together with the Eskom Pension Fund, which holds the remaining 60% - in Pareto, an investment fund specialising in urban, upmarket shopping centres with stakes in malls such as Sandton City, The Pavilion, Cresta Shopping Centre and Southgate. Pareto is valued at about R2,5bn.

Van der Vent says though most future investment in retail centres would be directed via the CPF and Pareto, "there will be occasions when we do investments on our own to add to our direct portfolio".

The township and rural location of some of its retail centres is a crucial consideration in the "government accommodation" segment of the PIC's property portfolio. Van der Vent says the PIC wants to play a leading role in providing office space for government that is closer to the people it's trying to serve. "Poor people often have to travel for miles to government offices clustered in city centres to get their social services. We believe there is a role to develop properties that are closer to these communities," he says.

In a similar vein, the PIC is "rationalising and cleaning up" its extensive R2bn portfolio of office buildings in former homelands, "to make them more user-friendly and community-orientated".

Van der Vent says though these properties will not necessarily make large returns, "owning a government lease counts for something and can be securitised to offer some returns".

The PIC exposure to private office space is limited at the moment to a few buildings in Mafikeng, Umtata, Johannesburg and Pretoria, but Van der Vent wants to grow that portfolio through direct investments rather than through intermediaries.

However, he is content to gain a foothold in industrial property through investing in JSE-listed property stocks. Van der Vent plans a strong push into that sector as listed property companies provide access to a wide range of property classes and thus offer a cushion against market volatility.

At the moment the PIC has only two investments in JSE property stocks - CBS and Spearhead. However, Van der Vent wants to raise the PIC's shareholding in the sector to 10%-12% of total market cap of all property counters in line with the PIC's overall control of the stock market.

The property division's most high-profile investment was its recent acquisition of 20% of the Airports Company of SA (Acsa) from a divesting Aeroporti di Roma of Italy for R1,67bn. The deal is awaiting the go-ahead from the competition authorities but, if approved, will boost the property division's portfolio to R5bn.

Acsa's non-aeronautical activities - mostly its retail and property interests - accounted for about 45% of its 2004/2005 revenue of R1,9bn, but Van der Vent believes the PIC can add significant value to this area of Acsa's business.

Acsa is highly profitable - it reported pretax profits of R593m last year, 22% up on the previous financial year - but the PIC investment comes at a time when Acsa is planning to spend R5,2bn over the next five years to expand its airports ahead of the 2010 soccer World Cup. It could require a capital injection from shareholders, though this is not envisaged for the time being.

Van der Vent says there are no intentions to sell the PIC's stake in Acsa to empowerment groupings. This will be left to government, which still holds 75% of Acsa.

Other strategic investments could follow. The PIC has been approached to buy Denel properties as the state-owned arms manufacturer is desperately trying to reverse its large losses.

"It's something we are looking at but our consideration is that any deal must make commercial sense," Van der Vent says.

Like the rest of the PIC, the property division is tasked with being an activist for empowerment in its investments. This, says Van der Vent, will be done mostly through the procurement of services and goods from black contractors and small- to medium-sized enterprises. This is particularly relevant in projects in which the PIC has a direct stake, such as its rural shopping centres.