Corporate credits are the focus for rival Prudential M&G vehicle

Ben Jones, manager of Prudential M&G’s £400m Secured Property Income Fund, said that with hindsight, 2007 was not a great time to launch the fund, as property values fell for the next two years. But in the second half of last year the fund, which started with £40m, saw large inflows, with more than £200m coming in by early this year. Much of it came from new investors, taking the number of investors to 40.

Unlike the LGP fund, M&G’s buys property with corporate, not government tenants. Since September, Jones has spent £200m on assets including three Tesco Extra stores, five Whitbread Premier Inns and a Bristol student housing block let to Unite.

Jones believes corporate long leases are likely to provide better relative value and long-term capital value returns than government buildings “which sell at tighter yields and tend to be in more secondary locations”.

Jones said years of experience prior to the latest fund’s launch buying for other Pru clients, such as the Prudential Retirement Income Annuity Fund, showed the capital element of this type of asset performed strongly, as well as the income element.

At launch, SPIF’s target real return over index-inked gilts was 1.5%, but at today’s prices and with index-linked gilt returns at about 1%, “it is more like 3% to 4% over gilts”, Jones said. “We expect to expand further because of property’s relative value over other fixed-income investments.”