In addition, investors’ real estate portfolios are becoming increasingly international, which is forcing asset management houses with exposure to just domestic property to look further afield.
Following this trend, Schroders and US global securities manager European Investors Incorporated (EII) – a US global securities manager – have joined forces to launch a global property securities fund.
Neil Turner, head of international property investment research at Schroders, is the man in charge of trying to expand the firm’s £6bn plus UK property portfolio into new markets. Mr Turner, who was previously head of European property for Scandinavian insurance and pension giant Alecta, is confident that the fund will provide the means to diversify portfolios that some clients are demanding. “The UK only represents between 7 to 8 per cent of the global real estate market and clients are asking for more international exposure to property,” Mr Turner said. He predicts the firm to have real estate professionals in international locations in the near future. “In order to develop a credible platform, it is absolutely essential to have local presence in these markets,” he said.
This increased international exposure to real estate is allowing investors to diversify country risk. However, to maximise their returns on property and reduce portfolio risk they should also combine different vehicles including direct, listed and geared indirect investments.
“Historically we have quantified the illiquidity premium for direct property at approximately 0.8 per cent per annum in a typical actively managed fund,” said Andrew Jackson, investment director, property, at Standard Life Investments. “The development of a property derivative market in the UK and Europe would reduce the merit of the historic illiquidity premium included in pricing analysis.”
His firm has recently published a study that also shows that the emergence of property sector swaps could add a new dynamic to the market, allowing manager to restructure portfolios swiftly and cheaply.
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Further real estate coverage on pages 34-35
