Derivatives buys on the cards for SWIP PUT as investors back strategy change

The £1.9bn SWIP Property Unit Trust could buy £100m of property derivatives after unit holders voted by a 98% majority to change the open-ended fund’s investment parameters. Malcolm Naish, head of Scottish Widows Investment Partnership, said: “We will probably buy a series of staggered terms and maturities. “Even if we limited ourselves to [a derivatives allocation of ] 5% of the fund, that would be £100m of notes or swaps; at times it could be more, or less.” Naish said the fund might trade IPD sectors or subsectors.

Naish and fund manager Gerry Ferguson wanted a mandate to invest in a wider range of liquid investment options, rather than only holding low-yielding cash. The property unit trust has taken in £400m of new money over the past six months. Naish said: “Previously the PUT could hold cash or direct property. Money has been coming in at a strong rate and we didn’t want to be in a position of being forced buyers. “We thought that 2010 could be challenging, with a strong capital markets recovery, but the occupier side still fragile.” SWIP PUT holds about 30% of its assets in cash and the target is 10-20%.

The change of investment focus will also allow Ferguson’s team to buy listed real estate and liquid, mainly government, bonds. “The idea is to get a better return than was being generated by cash, but it is still primarily a bricks-and mortar fund, focused on the UK, which is the story the investors bought into,” said Naish. SWIP’s previous investments in property derivatives involved buying three notes for the £1.1bn Scottish Widows Unitised Fund. The last of the three matures this month. “I suspect that we would use derivatives to get exposure to beta returns in the market, with the alpha coming from direct investment,” Naish said. “This is not fundamentally altering the PUT, but it is modernising it.”