UK – Legal & General Property (LGP) has made big changes to the terms of one of its key property funds after breaking new ground by inviting the fund's investors themselves to come up with recommendations.

LGP's Industrial Property Investment Fund (IPIF), which was due to come to an end in 2015, has been extended to 2020, and its new terms allow for easier redemptions and for new equity to be raised in future.

Dan Batterton, business development manager at Legal & General Property, said: "Empowering our investors to take a lead role in refreshing the fund structure, this strategy is a clear statement we understand we are here to provide a service to our unit holders."

Management of the £780m (€915m) IPIF established the IPIF Investor Advisory Committee to allow unit holders or their advisers to design new terms for the fund they believe will best protect their interests over the long term, LGP said.

The committee, comprising seven members representing the interests of all unit holders, met in private several times before drafting a series of recommendations for change.

These were approved unanimously at the fund’s EGM.

While there is a very liquid secondary market for investments in the closed-end fund, with around 5% of the fund trading every quarter, before the changes to the terms, investors had no opportunity to leave the fund, Batterton explained.

This was not right, he said.

"It's not the leading edge of corporate governance," he added.

Consequently, the fund's management approached its investors – which include major multi-managers such as Schroders, Aviva and CBRE – asking them to design the changes they would like to see in the fund.

"These investors see the best-in-class, so we asked them to use their expertise," he said. "We made a commitment that we would take on board every recommendation they made."

LGP said allowing the investors to do this future-proofed the fund and paved the way for "cutting edge" processes to be implemented.

The main changes include the introduction of an exit mechanism, which gives all unit holders a five-yearly option to leave the fund without causing it to close, extending the fund to 2020 and putting in place a clear rolling process after that.

On top of this, the need for 100% resolutions has been removed, with the threshold reduced to 90%, while flexibility has been added to raise future equity, LGP said.

Batterton said these changes were likely to become more common features among real estate funds in general in future.

"The investors who provided us with advice on this are asking other managers to act in the same way," he said.

"This approach is definitely going to be used again and will hopefully be seen as a sensible way forward.

"To be at the forefront of corporate governance is important because it builds trust."

IPIF was launched in 1997 as one of the first indirect specialist real estate funds.

Initially, it had four investors, but this number has now grown to 93.

The fund focuses on good quality, higher yielding, predominantly multi-let industrial estate assets, with a minimum of 65% weighting towards London and the South East.  

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