Indirect Investment Market: Jones Lang LaSalle market commentary

UK market overview

The Jones Lang LaSalle Balance Fund Index rose 0.90% during September and 1.51% for the quarter, resulting in a 12-month return of -0.40%, writes Ashley Marks.

Secondary market pricing moved in by 1.26% over September and 2.21% for the quarter. Demand remains strong across all indirect sectors, with momentum likely to continue on trend into Q4. Potential investors continue to increase their bids in an effort to allocate capital and attract sellers from favoured funds.

p30Balanced funds

UK balanced funds are still most in demand. Redemption queues are minimal or non- existent as new money quickly outweighs redeeming investors. A number of funds are issuing new units at offer price (around a 5% premium to net asset value).

Investors continue to seek a strong income return with the potential for medium-term capital growth, although a priority is that the fund can provide liquidity if required.

Lothbury, Hermes PUT and Threadneedle remain in demand with pricing at a 3%-plus premium. Blackrock UKPF has also seen strong demand, with pricing continuing to rise from a 1% to a 1.25% premium.

Retail funds

With the improving economic outlook and as we move towards retail’s busiest time of the year, sellers are becoming scarce and pricing is moving closer to NAV.

Demand for Lend Lease Retail Partnership and Henderson Shopping Centres has caused pricing to move inward to a discount to NAV of around 5-6%.

Of the retail warehouse funds, pricing for Henderson, Standard Life and Hercules remained at around a 6-7% discount. However, interest appears to be thinning.

Industrial funds

L&G IPIF and SWIP AIPUT remain in demand at pricing between NAV and around a 1% premium, but sellers remain scarce.

As reported previously, the long-term results of Hansteen’s takeover and further capital injection into Ashtenne remain to be seen, but impact on secondary market pricing has been significant, moving from around a 40% discount to closer to 20% (albeit with no deals yet, to our knowledge).

Office funds

Office pricing remains static, with demand increasing for CLOF, as buyers wish to enter the fund at around a 5% discount to NAV prior to the completion of a pending extension proposal. WELPUT pricing remains stable at around a 2% discount.

Other funds

L&G Leisure remains in demand with pricing at above a 1% premium to NAV, with few options for  investors to allocate leisure capital elsewhere since the removal of almost all third-party investors from X-Leisure.

There remains a divide between buyers and sellers in Unite Student Housing, with buyers seeking around a 3-4% discount and sellers requiring pricing much closer to NAV.

Continental Europe

Demand continues to grow for well- performing funds with low gearing, core assets and that distribute income. Investor appetite has risen recently for higher-geared funds in previously out-of-favour locations.