UK - Derivatives offer real estate investors good opportunities to diversify their portfolio, according to property experts at the ING Real Estate Annual Seminar.

Nigel Pickup, fund manager for ING Real Estate, said the derivatives market and is expected to continue growing and could help provide investors with new sources of return from property.

"Derivatives are certainly wide spread across most asset classes and seem to be getting a lot better known now than they used to be," said Pickup.

"The market is widening and knowledge is increasing. What it means is that we can provide new sources of return from property. There is an opportunity to deploy capital immediately and as the market develops liquidity will increase," he added.

The market for swapping total return notes traded on the IPD All Property Index has kept on growing, according to Pickup, who said: "There was certainly talk this year that the derivatives market would outgrow a direct [real estate] market, which in most asset classes it does. It may not get there this year but I think it is only a matter of time before it does."

These latest comments came just as the Investment Property Forum's Property Derivatives Interest Group (IPF PDIG) launched a Property Derivatives Toolkit aimed at better informing potential property derivative end-users.

‘Getting into Property Derivatives' is designed to address the main obstacles encountered by many property investors when investing in the derivative market, by examining key concepts such as pricing, advantages and disadvantages of the instruments and the potential strategies investors can use through property derivatives.

Nick Scarles, chairman of IPF PDIG, said: "It has previously been difficult for new participants in the property derivatives market to identify a clear path to undertake their first trade. This new toolkit provides valuable guidance on property derivatives based upon the experience of those already in the markets."

The toolkit will outline the compulsory UK regulatory and operational processes that property investors must establish before being allowed to trade and will include four case studies that show how investment managers are using property derivatives.

Tony Yu, a fund manager for ING Real Estate who led the production of the publication, said a "lack of understanding of the market and instruments, both at an operational and practical level," was the main hurdle for property investors thinking of going into the derivative market.

"This publication, which has been produced by property investors who have already confronted these operational and practical issues, will hopefully address the barriers to entry which ordinary property investors face," he added.

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