UK - The first pure property derivatives fund, offering cheap exposure to the UK real estate market index, has been launched with backing from a number of institutional real estate fund managers.
The inProp UK Commercial Property fund will be used by Scottish Widows Investment Partnership (SWIP) on behalf of the SWIP Property Trust, as well Prudential's real estate fund manager PRUPIM, and the Skandia Property fund, advised by ING Real Estate Investment Management.
Launched by new company inProp Capital, the fund will allow fund managers and investors to gain an unleveraged beta exposure to the UK market without the management costs or liquidity constraints associated with traditional direct real estate funds.
A number of open-ended property funds in the UK closed to redemptions during the credit crunch of 2007 and 2008, leading to a re-evaluation of the fund model among the investor community.
The inProp fund could potentially offer a solution to both fund managers looking to manage liquidity in their portfolios and an alternative for end investors looking for a simple balanced real estate exposure.
The fund will be listed on the Irish stock exchange, track total returns as measured by the Investment Property Databank (IPD) UK index and offer monthly liquidity and no subscription fees.
Redemption fees will also be waived if investment is held for more than one year.
InProp Capital, created by former members of Bank of America's property derivatives team, believes the fund will be particularly attractive to real estate investment managers that want to take advantage of property derivatives as a portfolio tool, but do not have the in-house capabilities themselves.
Paul Ogden, partner at inProp, said: "You don't need to build up your own team to use derivatives to track the market in an ungeared form - we can provide that effectively off-the-shelf.
"We are providing an opportunity for people who wanted to get involved, but found the whole business of entering into derivatives contracts just too daunting."
However, Ogden said he expected to talk to pension fund advisers about the fund's potential for offering their clients a simple, low-cost exposure to UK property.
"We spoke quite some time ago to the consultants and were favourably received, but at that point we didn't have a fund, we had an idea," Ogden said.
"We will obviously be talking to those guys [again]."