UK - Protego Real Estate Investors and Threadneedle Asset Management have completed the merger of their respective UK property funds, the Protego UK Property Fund and the Threadneedle Property Unit Trust.

The combination of the two funds will create a £400m (€450.5m) Trust with over 100 properties and follows proposals made by Protego Real Estate Investors to its fund's shareholders in October to give investors what it describes as a larger and more diversified portfolio, improved liquidity and a lower total expense ratio.

"Our principle consideration in proposing this merger to the fund's shareholders was the protection of their long-term interests in an increasingly difficult investment market," said Nick Pink, managing director for UK Investments at Protego.

The decision to merge was partly influenced at the time, however, by the wave of redemptions last year which forced the fund to suspend redemptions from December 2007 for a year because it was unable to sell assets fast enough to compensate investors.

"We started getting redemptions from the fund-of-fund managers because we are an open-ended fund and they had liquidity problems themselves," said Iain Reid, chief executive officer (CEO) and chief investment officer (CIO) at Protego Real Estate Investors.

"We were not able to pay those (redemptions) out immediately. We tried to sell over 50% of the portfolio. We managed to sell one or two investments but we had to use that to cover the gearing," he added.

Prior to the merger,the Protego UK Property Fund had a gross asset value of approximately £61m (€68.6m) invested directly in 15 properties across the UK, including industrial properties, shopping centres and office blocks.

Reid said Protego had been in discussion with "two or three" other funds before deciding on the Threadneedle Property Unit Trust, because of their similar investment strategies; being a balanced fund targeting high-income returns.

"We decided on Threadneedle, who have a very long-established and stable fund. Crucially, they had a similar style and strategy to our own," said Reid.

The Threadneedle Property Unit Trust returned -9.8% in the year to June 2008, the second best performance of the 28 balanced funds calculated by the Association of Real Estate Funds.

Chris Morrogh, manager of the fund and director of Threadneedle Property Investment, said: "This merger has secured further property portfolio and investor diversification for the trust in a highly cost-efficient manner. Being a consequence of a fund merger, these benefits have been generated without capital commitment by the trust."

Pink said investors in the Protego UK Property Fund, primarily wealth managers and fund-of-fund managers, showed "unanimous support" for the merger.

They will become unit holders in the larger Threadneedle PUT, which will continue to be managed by Threadneedle Asset Management and Protego will then cease to have any control over the management of these investments.

Protego Real Estate Investors was launched in April 2004 and currently has a total of £2bn of assets under management.

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