UK market overview
In October, the Jones Lang LaSalle Balanced Fund Index rose 0.58%, pushing the 12- month return into positive territory, to 0.47%, writes Ashley Marks. That figure rises to 4.58% including secondary market pricing, highlighting the positive swing in pricing over the period. Secondary market pricing has improved by 4.09% over the past 12 months. Bid pricing continues to move in, as potential investors find it hard to find willing sellers in the most sought-after funds.
Pricing was largely unchanged last month. Demand is strong, with pricing mostly between NAV and offer price, and some managers issuing new units at offer price. There has been a turnaround for most funds with past liquidity problems. For example, in the past nine months Rockspring Hanover’s pricing has moved from a 20% discount to trade at a 1.6% discount. UBS Triton’s NAV has increased around 2% in the past three months, making it a top performer, after restructuring and reducing its redemption queue. Its pricing has also gone from a deep discount earlier this year to close to bid price.
Retail fund pricing firmed up in October, driven by deals in Standard Life’s Shopping Centre fund, the pricing of which improved from a discount of c. 6% to c. 4%. Demand for Lend Lease Retail Partnership and Henderson Shopping Centres remains strong, with pricing improving to around 6% discounts to NAV. Of the retail warehouse funds, activity is increasing in both Henderson, with pricing moving from a 5% to 4% discount, and Hercules, with pricing improving from c. 9% to c. 6% discount to NAV. Potential investors are largely driven by these funds’ attractive income distribution yield.
Trading in L&G IPIF and SWIP AIPUT is thin, as sellers remain scarce. Demand is still rising (and is now above NAV), as potential investors increase their pricing to reflect the funds’ strong Q3 performance; their NAV is up by a minimum of around a 3.5% increase in capital values.
Trading in office funds reflects increased investment in Central London. WELPUT is the stand-out performer, with around a 6% jump in capital value in the past three months and a 3%-plus capital uplift in October. CLOF’s NAV rose around 3% in the past three months. Trading remains thin in these two funds, but activity should step up as investors seek to increase their central London exposure.
There is still strong demand for L&G Leisure, at or above around a 2% premium to NAV. Investors are unwilling to sell their leisure exposure, with few alternatives available since X-Leisure removed all but two of its investors. Unite is the preferred student housing fund, with sellers seeking to exit at NAV, compared to Cordea Savills, which has sellers at -5%.
Most buyers are targeting well-performing funds with low gearing, core assets and that distribute income. Opportunistic buyers are seeking funds at a double-digit discount, where the expiry/wind-up is relatively certain.
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