Pension funds approve conversion of Schroders SEPUT

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  • Pension funds approve conversion of Schroders SEPUT

EUROPE - UK pension fund and charity investors in Schroders' £1.2bn (€1.5bn) SEPUT core UK property fund have approved its conversion to a property authorised investment fund (PAIF) - a vote of confidence in the structure the fund manager said would give a "significant fillip" to other mooted conversions. 

SEPUT - which Schroders launched when it set up its property fund management business in 1971 - will be renamed Schroder UK Property fund.

On conversion, the fund, which has returned 11.2% per annum over a rolling three-year period, will also open to new institutional-only investors including insurance groups and discretionary asset managers, and overseas investors.

Schroders Property associate product manager Alice Wilcox told IP Real Estate by email that a broader investor base would benefit existing investors.

"Our experience with other Schroder property funds has been that this should provide greater liquidity to unit holders, which may benefit performance," she said.

Under legislation introduced in 2008, a PAIF that invests either directly in commercial and residential property or in REITs is exempt from UK corporation tax on its investment income.

According to Wilcox, the PAIF structure also offers administrative advantages over the existing structure.

Unit holders looking to roll up their income will be able to reinvest automatically, while tax-exempt investors will be able to receive income without tax deductions.

Currently, they are forced to claim back deductions from tax authorities.

Wilcox attributed the lack of PAIF launches and conversions to date to the poor market environment immediately following the launch.

Some fund platforms have also failed to meet the requirement to set up three separate income streams.

Moreover, retail funds that may have converted to PAIFs were beset by cash-flow problems in 2009-10.

"The landscape is now more positive," said Wilcox. "Some of the main fund administrators are now able to handle PAIFs, and product development activity appears to have picked up markedly in the last year.

"It is reasonable to expect to see several new PAIFs launched over the next 18 months."

The conversion will be the largest - indeed one of the few - since PAIF rules were introduced in 2008. 

Aviva Investors this week confirmed that it planned to convert the Aviva Investors Property Trust into a PAIF, but no timings have yet been set.

A spokeswoman for the fund manager pointed out that the PAIF industry was still at a relatively early stage.

LGIM said it would launch a retail PAIF following clarification in November last year that transfers between the PAIF and feeder funds would be exempt from capital gains tax.

A spokesman said: "It's a large fund, and the mechanics need to be right - the operational detail has to be gone through."

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  • QN-2546

    Asset class: Real Estate Equity Fund (non listed).
    Asset region: Europe.
    Size: Total CHF 600m, approx. CHF 100-300m per fund investment.
    Closing date: 2019-06-28.

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