InProp Capital is launching a £500m fund to invest in property derivatives, REITs and REIT debt – the first vehicle of its kind in the UK.
The three-pronged approach is intended to take advantage of arbitrage opportunities between the financial instruments, according to InProp founding partner, Paul Ogden.
The InProp Trident Fund will launch with a 30% allocation to derivatives, 30% to REITs and the remainder to corporate bonds, with the split fluctuating according to market pricing.
Ogden said: “Real estate is very much the flavour of the month among the wider investor community, and there is a huge amount of capital trying to access the sector.
“For those who don’t want to buy direct real estate, REITs are the main interface for investment, but they are starting to look expensive as the equity market rallies.”
He added that investing in derivatives “provides a competitive alternative” for the proposed “alpha-seeking long-only” vehicle. The former Bank of America derivative specialist said sentiment towards the product had picked up since the start of the year after contracting in the wake of the financial crisis.
According to IPD, the UK derivatives market shrunk from £7.1bn in 2008 to £708m last year. One derivatives specialist said that a lack of sellers in the market could mean a shortage of trades for the fund, which will invest in exchange-traded futures on the Eurex exchange, rather than over-the-counter products.
The open-ended vehicle will offer fortnightly liquidity and should, according to InProp, generate an annual return of 16.5%.
The investment manager is targeting multi-managers, high-net-worth individuals and family offices to launch with £10m of equity.
InProp was founded in 2008 and also runs a $223m (£132.6m) derivatives-only fund.
The five-year old UK Commercial Property Fund returned a little less than 9% last year compared with the IPD UK index total return of 10.5%.
Its AUM peaked at $298m in August 2012, and has remained stable at around $200m for the past 12 months.
