Property diversification beckons investors

Investors want funds that can protect capital, outperform benchmarks and offer diversification. Many are turning to real estate, but the options are wide ranging.

Real estate managers are responding to increased demand from fund ­managers by launching specialised funds with a variety of structures.

Several real estate funds that were recently introduced have taken the Luxembourg Sicav structure. Fund managers are enticed by the Grand Duchy’s flexible regulatory regime and believe investors find ­Luxembourg’s depth of regulatory experience reassuring.

KMG Capital Markets, based in Luxembourg, has seen a number of residential real estate funds join its KMG Sicav-SIF (specialised ­investment fund) platform this year alone. The platform enables third parties to launch their own ­Luxembourg-regulated funds ­structured as Sicav-SIFs.

According to Kevin Mudd, director at KMG Capital Markets, property funds are witnessing a resurgence in investor appetite as “people want a relatively safe investment in volatile markets and still have faith in bricks and mortar.”

He also believes fund managers are drawn to the Sicav-SIF model as the regulated vehicle is viewed favourably by investors across Europe.  

In March, the A$1bn Australian property specialist LM Investment Management entered a master-feeder arrangement with KMG to provide European investors with access to its Australia-focused property funds.

LM says the residential real estate opportunities in Australia are ­significant. The Australian Bureau of Statistics data shows national house prices rose 18% in 2010, 50% since 2005 and 165% in the past decade.

The company claims demand for property in Australia continues to be unmatched by supply, with 131,000 new dwellings forecast for 2011-12 and a current housing shortage in excess of 200,000 homes.

LM is hopeful that by joining the KMG platform, European investors struggling to find exciting real estate opportunities in Europe will be tempted to invest in the Australian market instead. 

But there are a number of ­ambitious residential property funds focused on Europe.

In August, KMG confirmed a UK-focused residential property fund had been added to its platform, London Actively Managed Property (LAMP). The fund will start trading in November and is aiming for 15% returns per annum, an ­estimate based on the current returns of its lead property adviser, Cignet. LAMP will focus on mid-range residential properties in the £400,000 price bracket in London and south east England.

Guy Rees, partner at Cignet, says this market flourishes in both economic upturns and ­downturns as there is a constant supply of distressed vendors and repossessions, as well as a shortage of property ­compared to demand.   

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