UK - Blind funds are likely to attract institutional investors entering the property market, according to William Hill, head of property at Schroders.
Speaking at the Schroders' Property Media Roundtable, Hill said he was confident equity investors would start coming back into the market in 2010 and be attracted to blind pool funds because of what he sees as "their clarity and transparency".
"From a business perspective, we believe the more attractive products are those that raise equity next year and deploy that equity in the second half of next year into 2010 and 2011. Typically, these would be the sort of opportunity star funds and private equity star funds, or in another description ‘blind' funds, where investors are coming in with no assets," said Hill.
Blind funds are pools of money which give the syndicator or manager the discretion to manage as they see fit and are therefore unlikely to have a targeted investment strategy or physical assets from which to build on, although the terms tend to stipulate assets have to be invested within a set timeframe or they must be returned to investors.
Hill claimed the ease of investing in blind funds and not having to make judgment calls will attract investors and encourage them to invest in new rather than existing products.
"The reason these [blind funds] are popular is because there is this huge distrust over valuations. The inconsistency between the fund-of-funds is quite incredible and the valuation industry has really got to sort it out."
Interestingly, of the 130 million in redemptions notified to Schroders last year, the majority were from fund-of-fund investors, according to the firm.
Hill believes the strategies deployed in blind pools can generate "opportunistic style returns from relatively low risk, core trust property."
The availability and access to debt and the financial status of funds' sponsors will be "crucial" for investors when deciding what funds to invest in, says Hill.
Mark Callender, head of property research at Schroders, highlighted "the lack of availability of debt" in the present market: "Overall debt is not that expensive at 6%. The problem is that there is not that much around."
Callender predicted the fall in rental values over the next couple of years would not be as steep as those in the early 1990s but warned capital values were likely to fall more sharply because the steeper rise in yields.
Schroders predicted investors will start moving away from exotic markets back to core and more secure property markets such as the UK or Japan, helping prime property assets to level out.
According to Ian Mason, head of UK property fund management, open-ended funds are still very much part of Schroders' strategy and are a way for investors to come into a "ready-made portfolio, with the diversification already in place, so a lot of the risks are already diversified, taking advantage of the secondary market and taking advantage of the pricing of that."
Schroders revealed it is looking to launch anopportunistic fund-of-fund next year targeted at institutional investors, which is likely to be invested in Europe and Asia, while plans are also under way to create more specialist funds.
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