LGP’s IPIF captures Falcon as investors drive extension

Merger with rival Falcon Property Trust follows seven-year extension for Industrial Property Investment Fund, in process driven by investor group

The UK’s largest specialist industrial fund has  been extended and is taking over a smaller rival. Investors in the £770m Industrial Property Investment Fund (IPIF) agreed to extend their fund by seven years and to merge with £100m, open-ended industrial fund Falcon Property Trust.

Falcon closed to redemptions in the second half of 2012 after multi managers Aviva Investors and CBRE Global Investors, representing about 75% of its 50 or 60 investors, submitted redemption requests. Since then, Falcon’s investors and its board have been looking for a solution.

The fund, managed by CBRE Global investors, has performed well and is ungeared, but a source said it has become too small to be an open-ended fund and deliver liquidity.

IPIF, managed by Legal & General Property, is a closed-ended fund but trades frequently on the secondary market, with quarterly trading volumes averaging around £30m-£35m.Many of the two funds’ investors are the same and it is thought that agreement has been reached to absorb the fund structure into IPIF, with Falcon investors having units in IPIF.

The merger will create a near-£900m, lowly-geared portfolio of multi-let industrial property, with more than 50% of assets in London and the South East.

LGP declined to comment on Falcon.

IPIF was due to terminate in 2015 and Dan Batterton, LGP business development manager, said the fund had been extended from this year to 2020, after a novel process whereby LGP stood back from the extension decision.

Instead, the investors formed a group which operated without input from LGP. The group decided to extend the fund and to update some of its terms and corporate governance.

Graeme Rutter, Schroders’ head of multi manager, who is on the IPIF investor group and chairs the Investment Property Forum’s indirect funds group, said the process was an example of best practice: “We have suggested the IPIF model to two other managers with imminent fund extensions.”

UK unlisted funds with good-quality portfolios, strong track records and robust corporate governance are thriving, with multi managers and consultants playing a part on behalf of their clients.

There has also been consolidation. Deutsche Asset Management’s former flagship the RREEF balanced property unit trust was merged into BlackRock’s UK Property Fund in December.

Last week, UBS Global said that it had averted winding up its flagship, open-ended UK balanced fund, Triton, by raising £200m of equity from pension fund investors to pay redemptions. Real Estate Capital reported last year that Triton had locked in investors for up to two years after about 80% submitted redemption requests.

Many continental European funds are also being restructured, as INREV figures show €70bn of them are due to terminate by 2016 (see more).

Jones Lang LaSalle has advised on an 18-month recapitalisation of a €200m pan-European industrial fund, involving the sale of €100m of units for about six investors to a secondary market specialist investor, as well as refinancing debt (see more).