GLOBAL - Pension funds are exploring risk-hedging property derivatives but hesitate when it comes to allocating to them, according to the manager of an alternative real estate fund launched in recent weeks.
The relative-value Iceberg Alternative Real Estate fund invests in assets including equities, unlisted vehicles and derivatives, as part of a joint venture between property advisers CB Richard Ellis and derivatives fund management firm AIMReech.
The fund has a target size of US$800m (€592m) and derivatives will make up maximum 25%.
Since it launched at the beginning of May, the fund has garnered 25% commitment. But none of it has yet from pension funds albeit AIMReech’s Christophe Reech said some had expressed interest.
The fund is the first of six real estate hedge funds to be produced by the partners, which will vary in terms of geography, sector, and risk and return profile.
According to Reech, a recent series of investor roadshows had revealed an appetite for different risk profiles "that sits with [broader] sentiment in the market today".
He said: "Investor sentiment is very different than it was five years ago but there is no certainty in the market. The fact that there is a need for reallocation and for hedging will naturally create a market for derivatives. This isn’t a fad or a fashion. It’s a fundamental move."
Transactions in UK property derivatives totalled £2.9bn (€4.3bn) in Q1 2007, according to IPD. The index-maker also revealed an increase in the size of transactions from around between £12—£14m to an average size of £18m.
Data published by IPD in March showed a 300% increase to €5.2bn in trading in UK commercial property derivatives over the previous year.