| Property Fund 101 |
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| 05/06/2005 | |
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Mathias Kulke, Head of European Distribution of Global Property Products at Henderson Global Investors, answers this week's 101 on property funds 1- What is a property fund? How does it work? A property fund is a vehicle that bundles investors who have a similar investment strategy together in order to invest in property. These vehicles can have a wide range of risk/return characteristics and usually offer investors the flexibility to structure their investment into property in a tax efficient manner. Most institutional investors in Europe who invest in property funds invest in non-listed vehicles that are closed-ended. Open-ended, non-listed vehicles are mainly found in the mutual fund sector or in the UK. Institutional investors usually buy shares in property funds by signing a subscription agreement. The committed money is then invested by the fund manager over a so-called "investment period". At the end of the fund life, the underlying of the fund is sold and the equity is handed back to investors. 2- What is the current state of the property market? After a weak period, occupier markets have stabilised in most European markets and rents are now at a more attractive level. However, investors' appetite for property has increased despite weak occupier markets because property has offered the investor an attractive return compared to other asset classes. As a consequence of strong investor demand for property, yields have moved over the last couple of years. In particular, pension funds and life insurance companies, who have traditionally been bond investors, have recognised the low volatility and relatively stable income which property offers. In a low bond yield environment, property still offers an attractive yield gap to bonds and therefore we can expect further capital yet to flow into the asset class. Even though property might be one of the oldest asset classes in the world, it is arguably just beginning to mature in continental Europe. 3- Which institutional investors are likely to be interested by a property fund? Investors, who have a long term investment perspective and who are looking for high and stable income returns with a high level of predictability, qualify from an investment strategy perspective. Larger institutional investors might have a direct property portfolio in their home market and use property funds to invest outside their home market as it gives them access to better diversification at the sector and asset level, access to local expertise and potentially higher returns. Smaller institutional investors may use property funds for their entire property exposure, mainly for diversification reasons. |
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Articles of the same Serie : 101 |
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Articles of the same Topic : Property
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