LaSalle announces creation of property derivatives platform (UK)
Tuesday 15 March 2011
LaSalle Investment Management (‘LaSalle’), the leading global real estate investment manager, has partnered with BGC Partners (‘BGC’), a leading global intermediary to the wholesale financial markets, to establish a property derivatives capability for clients.
Together with BGC, LaSalle will embed the end-to-end systems and processes to empower LaSalle’s fund managers to identify value and then execute and monitor trades. LaSalle see clear long-term benefits to clients by facilitating access to property derivatives and want to be ready to take advantage of opportunities as they arise.
In terms of investment strategy, derivatives can be used tactically to tilt the portfolio towards favored sectors or away from those expected to under-perform in the short-term, with reduced performance drag associated with the trading costs of employing a similar strategy using the direct market. They can also help address overweight exposures to sectors, negating the need to sell assets that an investor may wish to retain for the long term.
Hedging can be used to mitigate the impact of falling market values by selling a derivative on an index when it is expected to fall. Finally, in a rising market when it is difficult to access physical properties at appropriate pricing, buying a derivative can be used to gain property exposure whilst effectively ‘locking in’ the prevailing market.
This announcement comes as interest in property derivatives continues to grow, despite a fall in volumes in the market in Q4 2010 driven by increased activity in the physical property market and uncertainty around regulatory change. At the recent IPD Quarterly Briefing in February, 36% of delegates said they would consider using derivatives this year, whilst 27% were found to not yet have the expertise to do so.
The new capability will allow LaSalle’s clients to access to a range of property derivative products as appropriate. LaSalle’s fund managers will be able to actively manage portfolio sector weightings, asset allocation and to hedge market downside risk.
Alan Tripp, UK Managing Director, LaSalle Investment Management said, “We do not believe that property derivatives will replace investment in direct real estate but rather that they will equip fund managers with another risk and portfolio management tool. There appears to be appetite for this sort of diversified strategy. The market is developing, and we want to offer our clients the ability to access this market as and when appropriately priced opportunities arise.”
“Initially LaSalle’s focus will be on the important UK property derivatives market, but in setting up the internal processes we have ensured the flexibility to expand the geographic coverage over time.”
Jon Masters, Head of Property Derivatives at BCG Partners said, “We are delighted to be working with LaSalle to create a new property derivatives capability and we believe that such a thorough approach will provide their clients with the latest risk management and asset allocation tools.”