UK market overview
The Jones Lang LaSalle Balanced Fund Index fell 5.3% in 2009 – a better-than-expected outcome, given the particularly poor performance during the first half of the year, writes Julian Schiller.
August was the turning point, when the index enjoyed its first monthly uplift since the 2007 peak. The upward trend continued for the rest of 2009. Taking secondary market pricing into account, peak-to-trough pricing fell to -34.0% in December, compared with a -44.6% low in July 2009. Stock continued to be limited in December. There were some small trades, but investors with £15m-plus requirements struggled to access units. Premiums to NAV are now being demanded for all prime funds. JLLCF estimates that at least £1bn is available for investment in established funds during the first half of 2010, either via new subscriptions to open-ended funds, follow-on fund raising by existing funds or investment in the secondary market.
A healthy number of small trades have been driven by investment managers rebalancing portfolios. Trades in funds such as BlackRock, Henderson and SEPUT have occurred at around 3%-4% premiums to November NAV. As mentioned last month, significant queues have developed to invest in most balanced funds, but many of the funds are now closed for new investment. Total cash for balanced funds in the IPD universe is estimated to have surpassed £2bn, placing further pressure on the already constrained direct market.
Retail warehouse funds
Investors have been paying premiums for exposure to funds managed by Standard Life, Schroders and Henderson. Recent buyers have benefited from big uplifts in valuations – over 15% in some cases during Q4 2009. Despite concerns about the longevity of the rally in this sector, vendors still demand 4%-7% premiums to December NAV.
Shopping centre funds
Demand is focused on Standard Life’s and Henderson’s funds, which command 4%-8% premiums, but availability of units is scarce, even at this price. Previously untraded funds are seeing activity; there were deals in Lend Lease’s Overgate Partnership last month at a discount of around 13% to November NAV.
There have been few industrial sector deals due to a combination of quarterly lags in funds’ valuations and the limited number of vendors. Strong Q4 performance has not dampened vendors’ pricing aspirations. On the primary market, Jones Lang LaSalle Corporate Finance assisted Scottish Widows Investment Partnership in raising £114m for the Airport Industrial Property Unit Trust – the second big capital raising recently for an existing sector-specialist fund, following Unite’s success in early December 2009.
Office and alternative sectors
There has been little activity in these sectors mainly due to absence of vendors. Premiums of up to 10% are still expected in funds such as HCLOF and WELPUT. Demand for leisure funds, which have seen little secondary market interest recently, is building as investors become comfortable with funds’ asset valuations and long-lease profiles.