UK market overview
Secondary market pricing continued to improve in November, driven by year-end allocation demands, writes Ashley Marks. This has coincided with strong returns for most balanced funds. The Jones Lang LaSalle Balanced Fund Index increased by 1.1% in November and 2.5% over the past 12 months. Including secondary market pricing, this rose to 7.0%, complemented by a 1.4% improvement just this month.
Balanced funds’ secondary market pricing improved by more than 2% in November, driven by strong demand for various funds on the primary market, which has had an impact on secondary market pricing. A number of funds have accepted large commitments, including Schroders UK Property Fund, Threadneedle PUT and Hermes PUT. Pricing for these funds has all moved to premiums of between around 2.5% and 4%. In terms of capital values, returns were strong in November, with UBS Triton enjoying a significant uplift of more than 2%, which helps explain the strong demand on the secondary and primary markets.
Demand continues to be strong for funds with core, prime assets. Some investors appear to be taking fund restructurings and extensions in their stride, while others are using them as an opportune time to exit or reduce their holdings. Demand continues to grow for Standard Life Shopping Centres, with pricing moving from a 6% discount to net asset value in October to around a 3% discount last month. Pricing for Lend Lease Retail Partnership has moved inward to around a 4% discount. Of the two most frequently transacted retail warehouse funds, demand continues to increase for Henderson Retail Warehouse Fund and Hercules Unit Trust. Henderson is seeing strong supply between NAV and a discount of around 2% to NAV, with buyers purchasing units at a discount of around 4%. Interest in Hercules continues at a 6% discount to NAV for small lot sizes. Potential investors appear to be driven by the larger discounts and strong assets within the funds.
Secondary market activity is still thin for industrial funds because of a supply- constrained market. Potential buyers of L&G IPIF have increased their pricing to around a 4% premium to NAV, as they seek to allocate funds to industrial stock in anticipation of strong Q4 2013 performance. Demand for Ashtenne is growing following the fund’s restructuring, although discounts remain in the double digits. Sellers of SWIP AIPUT remain scarce at almost any price.
WELPUT and CLOF continue to perform strongly, seeing around 2% capital uplifts last month. WELPUT has enjoyed an uplift of over 7% in the past three months. Secondary market trading in both funds is subdued, as they are both going through extensions.
As the year draws to a close, sellers and buyers await the final Q4 2013 performance returns to attain the future direction of their holdings. Demand is buoyant for core assets, although some investors are moving up the risk curve to improve their returns.