News

CBRE launches into derivatives

News

Robert Gibson

18 June 2005

Possibility of £20bn market as agent teams up with US broker GFI to set up trading desk

CBRE is launching a trading operation to exploit the potential £10bn-£20bn property derivatives business.

The global giant has teamed up with US derivatives specialist GFI Group to form a property derivatives trading joint venture. Derivatives create a synthetic property market, allowing clients to increase or reduce their exposure without the need to trade underlying assets.

The jv’s board will include two CBRE and two GFI directors. CBRE will introduce clients and contracts. GFI, which has 900 staff around the world, has been instrumental in the development of credit and shipping derivative markets. It will execute the trades from a desk at CBRE’s London headquarters, Kingsley House, and will share in the operating profits generated.

The venture, which will be announced on the New York Stock Exchange on Monday, will begin trading on 1 July.

Only around £600m of derivatives have been traded since tax changes last year made it easier for institutions to hold the instruments. But the potential market is huge. At a recent IPD event it was claimed that property derivatives could make up to 14% of the £300bn of property allocation held by funds. Accounting firm Deloitte reckons the market could be worth £10bn-£20bn over the next three years.

CBRE managing director Martin Samworth said: “The derivatives market in other asset classes has matured to at least the same size as the underlying market within three to five years. I cannot see why, in this instance, property would not have the potential to mature in the same way and, if that’s the case, then CBRE should ensure that it is at the forefront of that evolution.”

Paul McNamara, head of research at Prudential, said in a feature on derivatives (Finance Focus, p65): “Once people have the confidence to use them, growth in the market could take off exponentially.”

Other players begin to play the field

In addition to GFI, other brokers have zeroed in on the commercial property derivatives market in the hope that it may become as lucrative as the equity derivatives market.

Henry Ann, head of new products at Collins Stewart Tullet, said: “It is very early stages… but we recognise the potential of property derivatives given the size of the underlying assets.

“We recognise that there is a database of returns, which gives a prime opportunity for an over-the-counter market to develop in property derivatives,” he added.

In mid-May, ICAP, the biggest derivative broker in the world, announced it had formed a joint venture with Nigel Kempner’s Grafton Advisors to promote derivatives to pension funds, developers and hedge funds.

James Adam, head of new product development at ICAP, said: “We are evaluating the market. We have two people working on it full-time but will tailor our resources as the market develops.”

Possibility of £20bn market as agent teams up with US broker GFI to set up trading desk CBRE is launching a trading operation to exploit the potential £10bn-£20bn property derivatives business. The global giant has teamed up with US derivatives specialist GFI Group to form a property derivatives trading joint venture. Derivatives create a synthetic property market, allowing clients to increase or reduce their exposure without the need to trade underlying assets. The jv’s board will include two CBRE and two GFI directors. CBRE will introduce clients and contracts. GFI, which has 900 staff around the world, has been instrumental in the development of credit and shipping derivative markets. It will execute the trades from a desk at CBRE’s London headquarters, Kingsley House, and will share in the operating profits generated. The venture, which will be announced on the New York Stock Exchange on Monday, will begin trading on 1 July. Only around £600m of derivatives have been traded since tax changes last year made it easier for institutions to hold the instruments. But the potential market is huge. At a recent IPD event it was claimed that property derivatives could make up to 14% of the £300bn of property allocation held by funds. Accounting firm Deloitte reckons the market could be worth £10bn-£20bn over the next three years. CBRE managing director Martin Samworth said: “The derivatives market in other asset classes has matured to at least the same size as the underlying market within three to five years. I cannot see why, in this instance, property would not have the potential to mature in the same way and, if that’s the case, then CBRE should ensure that it is at the forefront of that evolution.” Paul McNamara, head of research at Prudential, said in a feature on derivatives (Finance Focus, p65): “Once people have the confidence to use them, growth in the market could take off exponentially.” Other players begin to play the field In addition to GFI, other brokers have zeroed in on the commercial property derivatives market in the hope that it may become as lucrative as the equity derivatives market. Henry Ann, head of new products at Collins Stewart Tullet, said: “It is very early stages… but we recognise the potential of property derivatives given the size of the underlying assets. “We recognise that there is a database of returns, which gives a prime opportunity for an over-the-counter market to develop in property derivatives,” he added. In mid-May, ICAP, the biggest derivative broker in the world, announced it had formed a joint venture with Nigel Kempner’s Grafton Advisors to promote derivatives to pension funds, developers and hedge funds. James Adam, head of new product development at ICAP, said: “We are evaluating the market. We have two people working on it full-time but will tailor our resources as the market develops.”