The F&C Property Growth & Income fund is shaping up for a reshoring to capitalise on the strong retail demand for commercial property.
The £63m open-ended Guernsey-domiciled fund was launched in 2005 by Thames River Capital – since taken over by F&C – to offer British and European property exposure to foreign investors. It reached a peak of £265m in the first quarter of 2007.
However, since the global financial crisis and a subsequent barrage of regulation, the fund is too difficult to sell in the UK – where the demand for property has exploded in the past year.
A new London-domiciled fund will be set up – subject to a shareholder vote near Christmas – and the fund’s assets will be transferred to the new vehicle with a tax waiver in the bag.
A feeder fund will remain in Guernsey for those investors who do not wish to change tax base.
Retail property funds have taken £2.9bn in net retail sales this year, almost double the £1.5bn the 2013 level, which was also higher than the previous year, according to IMA figures.
Over that time the F&C Property Growth & Income has languished, totalling just £63m despite outperforming both the FO Property Europe and IPD UK All Property indices over seven years.
The fund’s size was £55m a year ago, which means the growth is virtually all from its 19.6 per cent performance over the 12 months.
Its shorter term performance is also solid, posting 45 per cent growth over the three years to 8 December compared with the 15.7 per cent of its peers, according to FE Analytics.
A hybrid fund that offers UK bricks and mortar, alongside pan-European property equities, its physical portfolio accounts for 8 per cent of total assets.
The securities side of the business is managed by Marcus Phayre-Mudge and Alban Lhonneur.
Phayre-Mudge says: “We don’t believe that open-ended and physical real estate should be in the same sentence because of the issues with liquidity for a daily dealing product.”
George Gay, a chartered surveyor, manages the direct property side of the fund that constitutes nine properties from regional towns across England.
The properties are “tertiary” level and a diversifier from the quality retail exposure that makes up most of the securities exposure, Gay says.
“We’re playing in the £1m to £3m bracket which is very much below other funds, but above that private investor competition.”
The fund’s largest holding is Unibail-Rodamco, Europe’s largest listed property company, with an 11.6 per cent position.
He believes the portfolio would be able to quickly absorb inflows into the fund, with a £25m slug on day one likely to be invested in equities and direct property by the end of the first quarter. The fund would begin trading in the UK in February.