Cordea Savills joins rush to launch UK core-return funds

Cordea Savills is the latest fund manager to launch an open-ended, UK balanced fund to provide core returns for institutional investors. After marketing the UK Income and Growth Fund for 15 months, Cordea Savills has managed to raise just under £70m from three investors: Aviva Investors, Danish charitable institution Real Dania and a UK multi manager.

Other fund management teams are marketing similar funds, including Arbuthnot’s ArbreIM (see news, November 2009, p3) and Schroders, which is trying to raise capital from German investors. Aviva Investors launched a UK Recovery Fund last month with £220m, while Legal & General is expected to launch a UK recovery fund in March. Since it was set up in 2004, Cordea Savills has focused on specialist funds and has not had a flagship institutional fund.

George Tindley, fund manager for the UK Income and Growth Fund, said: “That was partly a reflection of market conditions: at the tail end of a boom you are searching for extra value. Now, while the ‘super value’ has already gone, there are interesting opportunities in this core area.”

Tindley said the fund will seek to offer three-monthly liquidity by paying cash or matching buyers for units, but if it cannot do that it will lock in investors for up to a year while it tries to sell property. If redemptions are higher than 10% annually the fund will close for a further year. The fund, which is a Jersey Property Unit Trust, is targeting minimum 6% returns and can use gearing up to 30%. Jones Lang LaSalle is its valuer.

 “We are going to have a difficult two or three years and rental growth will be marginally negative for four years,” Tindley said. “So we are relying on a 6%-6.5% income yield and by buying long leases with best-quality tenants, you are setting yourself up for reverting to some good growth. I don’t think that is an unattractive return, given how unattractive yields are in other asset classes.” Tindley outperformed the comparable IPD benchmark for client Diageo over the 20 years between 1988 and 2008.

• Cordea Savills has appointed Charles Smith, a fund placement specialist from Jones Lang LaSalle’s Frankfurt office, to its institutional business team based in Munich