Fund proliferation boosts private client liquidity

The recent proliferation of property funds is offering European distributors the means to tailor investors’ portfolios to their differing risk profiles, using an asset class previously considered highly illiquid. “Traditionally, direct investing was the primary route to real estate exposure,” said Paul Davies, real estate tax partner at consultancy firm Ernst & Young. “The creation of funds gives a means by which investors can access the property as an investment class, without necessarily having to buy a property directly.” A fund enables private clients to spread their risk across different sectors, geographies and different types of property, while offering professional management of assets, said Mr Davies, saving investors the hassle of direct administration of the property. Global players such as Fidelity and Russell Investment Group, with strong experience of selling property investments outside Europe, have recently extended their efforts into this continent. Both the Dublin-domiciled global real estate securities fund launched by Russell in December 2005 and the Luxembourg-domiciled global fund launched by Fidelity International in January 2006, are benchmarked against the FTSE EPRA/NAREIT global real estate index. The index has almost half of its weightings in the US and around 30 per cent split amongst Australia, Japan and UK. Offices, retail, diversified, and residential are the index’s largest weightings. These global funds claim to provide geographic diversification, reducing single market risk and volatility. Regional property funds have represented the focus of other market players, such as Henderson Global Investors, which has launched what it claims to be the first open-ended European fund, investing in specialist country and sector property funds, and domiciled in Luxembourg for cross-border distribution. A new closed-end property fund from Collins Stewart, incorporated in Guernsey and to be traded on AIM, will invest in Eastern Europe. Major urban centers in Turkey, Romania, Ukraine and Bulgaria are the fund’s target, with Istanbul and Bucharest apparently offering the best opportunities. These are fuelled by multi-national businesses entering these countries, seeking western standard accommodation, currently in limited supply. This is coupled with recent strong economic growth, and financial and structural reforms, being implemented in the four countries. The target annual dividend of the fund, once fully invested, is expected to reach 7.5 per cent.

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Davies: funds are a new way to access propety market