UK market overview
In February the Jones Lang LaSalle Balanced Fund Index fell for the first time since July 2009, a trend that continued in March, when the index fell -0.23%, writes Ashley Marks. In previous months the index was flat or showed a slight increase in performance. The index has risen 1.88% in the past 12 months, or 1.38% including secondary market pricing.
The big falls in secondary market pricing relative to net asset value at the start of the year slowed in February and seem to have stabilised in March. Retail warehouses was the only sector where prices deteriorated.
Since the start of the year, balanced fund secondary pricing has hovered around NAV, with a small premium of 0.07% in March. Demand for well-performing funds such as Lothbury PUT and Hermes PUT is strong, with vendors commanding premiums around 2%. Henderson UKPF and UBS Triton, among others, remain at small discounts to NAV. Blackrock is trading at or close to NAV, after trading at a small discount for a while.
Shopping centre fund pricing has held at levels similar to February’s, with low-geared and ungeared funds such as Henderson’s and Standard Life’s at the smallest discounts to NAV, of around -3% to -5%. Lend Lease Retail Partnership still trades at around a 7.5% discount, while the Mall recently traded at a discount of around 30%.
Investors are still looking to cut their retail warehouse exposure, with pricing between -4% and -10%. Investors that recently looked to more prime and lowly geared funds are waiting to see Q1 results. Hercules trades at a greater discount than Henderson’s Retail Warehouse Fund, but both funds dominate secondary market trading in the sector.
Demand is strongest for SWIP AIPUT, with vendors seeking discounts above 4-5% – up on previous months. A small but loyal investor base hampers liquidity in this fund. L&G IPIF trades at around a 6% discount, compared to around -5% last month.
There is little demand for higher-geared funds like Ashtenne and The Industrial Trust, which remain illiquid. Open-ended funds like Falcon and RREEF’s are not traded often due to vendors’ ability to redeem at around NAV -2% (subject to the fund manager’s approval).
Office and other funds
Office sector pricing was relatively stable this month, with WelPUT largely unchanged and HCLOF improving a bit after a recent rise in buyer interest. But these central London funds’ contrasting fund-level performance seems to have little impact on their relative pricing. Away from central London, activity is scarce.
The Unite Student Accommodation Fund continues to trade frequently at modest discounts to NAV.
Overview: increasing investor sophistication
LLCF has recently seen a number of investors looking to buy units in distressed vehicles or those with special situations attached, such as rights issues or requiring refinancing or recapitalisation. Although few of these funds are available and it is often difficult to match the expectations of vendors and purchasers, this area of the market is expected to grow throughout 2012.