This month the AIM-listed New Star Asset Management will launch a new type of international real estate fund for UK retail investors this summer. It will be tax-transparent and invest in commercial properties outside the UK in Western and Central Europe, Japan and the rest of Asia.
John Duffield, New Star’s chairman, says: “Until now, the only way that retail fund investors have been able to access commercial property outside of the UK has been through international property shares or REITs.”
The New Star International Property fund will aim to hold around 80% of its assets in direct commercial property. “The new fund represents the next step in the growth of commercial property as a core asset class, similar in a way to the first international equity or international bond funds that were launched some years ago,” says Phil Wagstaff, managing director of New Star’s UK retail sales and marketing.
Inside the investment funds division
The new vehicle will be within the company’s New Star Investment Funds division. This already runs two property funds including the daily-traded £1.9bn UK commercial property unit trust vehicle for retail investors.
The UK commercial real estate fund has a London and south-east England bias and consists of around 60% offices, one-third of which is located in the City of London. The management team has provided a compound annual total return of 11.6% with no negative returns since its June 1999 launch. It accepts investment sums from a minimum of £1,000 or investors can choose to deposit £100
a month.
New Star’s other real estate vehicle, Global Property Fund, was launched in April 2006 with around $190m of committed equity. With leverage, the
size of its portfolio is expected to grow to about $650m.
It is a Bermuda-based, tax-exempt, global, core-plus property fund for institutional investors and is presently worth just under $1bn. New Star chief operating officer John Mould says: “European real estate, excluding the UK, will account for about 60% of the portfolio, while the remaining 40% will be invested in Asia.”
The managers are planning for a total of 45% of the Bermuda-based vehicle to be invested in Western Europe and 15% in Central Europe; Japan will account for 20% while the rest of Asia, including Malaysia and Thailand, is to take up 20%. The vehicle is investing in prime properties in major global cities and has an initial target yield of 6% and an IRR of 15% over a seven-year investment period. The investment minimum is $5m and participants include wealthy individuals and Middle Eastern investors, and institutional clients. Other participants include US pension funds and insurance companies and the World Bank.
In all, the fund will own property in around six different countries, and the portfolio includes real estate in Amsterdam, Brussels, Munich and Tokyo. Last October the global fund’s team was strengthened by the recruitment of Robin Carr from CB Richard Ellis as head of European acquisitions. Carr was director for EMEA investments at CBRE.
“We also plan to buy property in Italy and central Europe as opportunities present themselves. The global fund targets property markets that are at the bottom of the rental cycle but at the same time can expect growth,” says Carr.
The vehicle was launched with $170m of initial capital and attracted $130m of new equity. “Because real estate yields are higher than the cost of funding acquisitions, it’s possible to borrow up to 80% of property values,” he says.
Carr says that New Star has little competition among investors in the UK
for the type of vehicles it offers. “There is only one other competitor of this kind and it is offered by Norwich Union. But we hold an advantage in that ours is a UK open-ended vehicle, while Norwich Union’s is a Luxembourg-based vehicle. In addition, we have an international investment spread, while theirs is European only,” he says.
Duffield set up New Star in 2000 after selling Jupiter Asset Management, a company he founded and led. Mould explains: “Through a combination of organic growth and the purchase of smaller asset managers, New Star went from zero to $18bn of assets under management worldwide in five years
from a standing start.”
Starts out with £93m fund package
The group entered the property sector in 2003 when it bought a £93m package of funds from Aberdeen Asset Management. It has taken 12% of the UK retail funds market, with its property unit trust typically being the company’s best-selling product. Real estate accounts for almost 9% of New Star’s assets under management, which total £20bn .
Later this year, the company plans to float on the London Stock Exchange.
New Star retains property consultancies CB Richard Ellis for Europe and DTZ for the Far East.
