Copyright: David Lawson– first appeared Property Week May 1999Home page
BARCLAYS PROPERTY INVESTMENTS
Barclays is among the most active players in the world of securitisation and derivatives, so it is no surprise that managers of its pension fund have moved strongly into limited partnerships. Barclays Property Investments director Andrew Thomson says around 30% of the pension fund's 900m property portfolio is now held indirectly. This is partly because of the recent launch of the 145m pound Whitgift Partnership but Thomson says BPI aims to maintain this as a long-term average.
This kind of vehicle can help where an asset is judged too large for the portfolio but is still an attractive prospect. The Whitgift Shopping Centre in Croydon, which Barclays had owned for 20 years, could be shared out among co-investors like NPI, NU, the Church Commissioners and BG.
A similar fund based on retail parks is now in the pipeline. BPI is also involved in the PRICOA-managed Industrial Partnership made up of io Group assets and the Lend Lease scheme involving Bluewater and Solihull shopping. Tax transparency was an early attraction. 'But this must now taken as read with these partnerships,' says Thomson. 'In future, investors will judge schemes on whether they can deliver performance.'
Institutional investors are attracted by a double-edged benefit from limited partnerships, according to Norwich Union Fund Management property director Ian Womack. As consumers, they can participate in property they might otherwise not touch. 'But we can also acts as managers to other investors to produce added value,' he says.
NU has committed only a modest part of its property to indirect holdings - probably less than 5%. But as one of the country's biggest fund managers, this is still a substantial involvement. PRIME was the first move into this field and forays have been made into the io Group's industrial partnership and the MWB leisure funds. NU has also moved into management by joining forces with Mill Group to establish a 100m PFI fund.
'This is an area which requires very long-term involvement. It is also highly specialised and time-consuming, so it needs a partner like Mill Group which is an expert,' says Womack. Other funds are now in the pipeline.
Some 400m pounds worth of property will be held indirectly via limited partnerships when Equitable Life hits its target, making up about 25% of holdings. Tax transparency is a significant factor behind this relatively high figure. So is the ability to gear up - something institutions can find difficult. Securitisation is also a possibility when the Treasury can be persuaded to change its stance and some of these partnerships could be an ideal vehicle.
'But the main reason is to get in with skilled operators,' says deputy chief surveyor Geoff Lauder. The Grosvenor Estate, for instance, is a recognised leader in shopping centres, so Equitable has joined forces under the Arkle Fund, aimed at investing 300m pounds in UK schemes. The fund has also put almost 100m into a partnership with Grosvenor to own the Basingstoke Shopping Centre.
'Shopping centres need vast teams of skilled managers, which most funds just don't have,' says Lauder. Equitable has also contributed to the Lend Lease Bluewater partnership and is betting on Pillar's abilities in retail warehousing.
Limited partnerships can also help revitalise an existing portfolio. Equitable provided 100m pounds worth of high-yielding offices for Frogmore to spice up.
LEGAL & GENERAL
While securitisation remains on the back-burner, limited partnerships are a good way of holding property, says Stuart Beevor, of Legal & General.
Liquidity, tax transparency and a closed-end fund would be the ideal, he says. The first is still not perfect but two out of three is not bad. This is why L&G now holds around 2% of its 4bn of funds indirectly.
The figure is growing although Beevor says there is no target waiting to be hit. 'It is an innovative way to find solutions but each property is judged on its merits,' he says.
L&G has teamed up with funds like Equitable Life and Scottish Widows to hold industrial property. It contributed to the THI Leisure Fund and has a retail warehousing joint venture with Salmon and NFU in Reading.
Beevor is now ambitious to do more than contribute. 'We see opportunities to manage such vehicles,' he says.