UK market overview
For the first time since July 2009, the JLL Balanced Fund Index fell in February, albeit by a marginal 0.06%, writes Ashley Marks. This follows almost flat 0.16% and 0.01% performance in December and January respectively. The index is up 2.42% in the past 12 months, or 2.03% taking into account secondary market pricing.
January’s big falls in secondary market pricing relative to NAV appear to have slowed last month. Balanced funds continue to trade most frequently due to the smaller discounts compared to sector-specific funds.
Since the July 2011 peak of a 1.57% premium, prices have fallen on JLLCF’s Balanced Fund Secondary Market Index. Pricing remained at NAV in February, but the number of funds trading above NAV fell. Lothbury PUT and Hermes PUT are now the only two regularly traded funds trading above NAV.
Henderson UKPF, BlackRock UKPF and UBS Triton remain at small discounts to NAV, while Threadneedle PUT is the latest fund to slip into discount territory.
Pricing for low geared or ungeared shopping centre funds fell slightly last month compared with January. The big price fall for Lend Lease Retail Partnership appears to have stabilised at around -7.5%. Henderson and Standard Life’s shopping centre funds remain priced at -3% to -5%, while The Mall continues to trade at around a 30% discount.
Investors are generally looking to cut their retail warehouse exposure, with pricing down to between -3.5% and -9%. A few investors have shown interest in lower-geared, more prime funds recently, in an effort to secure units in sound vehicles at attractive discounts. Hercules continues to trade at a larger discount than Henderson’s retail warehouse fund.
Office, industrial and other funds
After the sharpest price falls of all sectors in January, office sector pricing was more stable in February, losing just 0.25%. WelPUT’s pricing stabilised at around -7%, but pricing for HCLOF fell to around NAV -0.5%. The contrast in these two funds’ pricing is largely down to HCLOF winding down as investors recognise the demand for prime central London assets on the direct market.
In the industrial sector, L&G IPIF and SWIP AIPUT attract the most buyer interest, with bids for IPIF at around a 5% discount and AIPUT bids up 0.5% to a 4.5% discount. Higher-geared funds, like Ashtenne and The Industrial Trust remain illiquid. Falcon and RREEF’s industrial vehicles are open ended, so sellers are usually only willing to sell units at close to the redemption price of around -2%
Due to recent pricing transparency, JLLCF’s industrial index now includes Ashtenne and AIPUT and omits The Industrial Trust. UNITE’S Student Accommodation Fund is trading at or close to NAV.
Overview: the emerging Asian secondary market
An increasing number of secondary deals are taking place in Asia as the market matures. As undrawn capital amounts are reduced, funds are becoming easier to price, with the focus being more on stabilised portfolios and less on the abilities of the fund manager.
JLLCF estimates 2011 secondary deal volumes in Asia totalled nearly $1bn, close to US volumes, highlighting the growing significance of this emerging market.