One of Australia’s largest unlisted property funds, the Dexus Wholesale Diversified Property Fund (DWPF), has approached AMP Capital proposing a merger with the latter’s AMP Diversified Property Fund (ADPF) to create an entity with more than A$15bn (€9.2bn) in managed funds.

A spokesperson for DWPF told IPE Real Assets today: “An initial approach has recently been made by DWPF to the ADPF responsible entity to consider a merger.”

DWPF is the flagship of the Dexus suite of unlisted funds. It has some 70 investors, including Australian super funds and a number of global investors. Its portfolio of office, retail and logistic properties is valued at A$10.7bn.

The Dexus fund is seeking access to due diligence to confirm the merits and financial metrics for both sets of fund investors before submitting a binding proposal.

Any subsequent action would need the support of investors from both funds.

“DWPF is now awaiting the initial response from the ADPF Responsible Entity regarding access to due diligence so that DWPF can consider the formulation of a binding proposal,” the DWPF spokesperson said.

“It is important to note that the approach was made fund to fund, that is by DWPF to ADPF,” a source told IPE Real Assets, adding that DWPF’s approach stemmed from approaches by ADPF investors dissatisfied with the ongoing underperformance of their fund.

ADPF is a diversified core fund with a portfolio of more than 20 assets, valued at some A$4.5bn.

The fund’s strategy, it says, is to focus on achieving “strong adjusted returns through active portfolio construction and asset management, including acquisitions, and accretive developments”.

One of the fund’s recent acquisitions, purchased jointly with AMP Shopping Centre Fund, was a half stake in Brisbane’s Indooroopilly Shopping Centre. The two funds paid A$800m to Commonwealth Superannuation Corporation for 50% of the asset.

Reports have suggested that it was this purchase – and the price paid for the asset when the shopping centre industry was already facing severe stress – that made some investors in ADPF unhappy.

An Institutional investor, who has investments with both Dexus and AMP Capital, told IPE Real Assets: “As an investor in DWPF we can see some merit in merging with ADPF. You understand the attractiveness to the Dexus fund to be able to bolt on a A$4-A$5bn fund.”

The investor said the whole AMP business, which has some A$192bn in assets under management globally, was “at risk”.

“AMP has said it is initiating a strategic review of its business, and this is tantamount to saying that the whole business is for sale,” he said.

“As an investor, we are not going to sit around and wait for someone to launch a takeover of AMP and offer to buy the business. That would not be the best thing for investors. But if we get suitors like Dexus making an offer, we are more likely to get (better) value.”

But he said the merger would face “some complications”. Others have said it would likely be a long-drawn-out affair.

This investor, who is invested with the AMP Wholesale Office Fund. said he was satisfied with the performance and returns from that fund.

“We rate AMP Wholesale Office Fund highly, and, in fact, we support the real estate team at AMP Capital. But given what has been happening to the AMP group, I don’t think the status quo is sustainable,” he said.

“It feels like a treadmill, and it has started moving. I don’t think anyone can stop it. My concern is that (the DWPF offer) may lead to contagion. This is the beginning of a process within the property fund management industry in Australia. It will not be an isolated instance.”

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