LGIM mulls hybrid option for daily-dealing property fund

New internal REIT index fund to be launched, and used in the portfolio, in the new year

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Legal & General Investment Management (LGIM) is considering making its open-ended UK Property fund and accompanying feeder fund into a hybrid offering, in order to improve liquidity and “provide balanced property exposure” to investors.  

In a letter sent to investors yesterday, seen by Portfolio Adviser, the firm said that subject to regulatory guidance and approval, the £1.3bn Legal & General UK Property PAIF could increase its exposure to Real Estate Investment Trusts (REITs), which will sit alongside its direct property exposure. The fund currently has a 20.7% allocation to cash and REITs, although it recently sold one of its largest assets – Woodside Industrial Estate in Dunstable – for £139m, thereby “significantly” increasing its cash weighting.

According to sources, the increased REIT exposure will be accessed via an indexed unit trust, to be launched internally by LGIM in the new year.

“In light of the current FCA consultation on funds investing in UK property, we believe it will still be possible for asset managers to offer exposure to UK property in an open-ended, daily dealing fund,” the letter stated. “We are confident that we can provide a solution that offers new and existing investors in the Legal & General UK Property Fund (PAIF) and the Legal & General UK Property Feeder Fund (Feeder) continued access to the sector.”

The PAIF will remain open to investors, according to LGIM.

“As the FCA has previously communicated any structural changes to UK property funds could require a long-term horizon to allow the market time to implement an appropriate solution while adhering to relevant regulation,” the firm continued. “We would therefore expect to deliver any proposals in a timely manner. 

“We will look to update clients and the broader market on this approach in due course.”

Launched in May 2014, Legal & General UK Property Fund is co-managed by Michael Barrie and Matt Jarvis. Currently, it typically invests up to 80% of its assets in UK office, retail, industrial and residential property, although it can hold up to 40% of the portfolio in property company shares or cash as and when the managers deem it suitable.

The fund has achieved second-quartile returns over three and five years of 7% and 8.2% respectively, and top-quartile gains of 62.2% over the last decade, according to data from FE Fundinfo.  

LGIM’s investor letter comes less than six weeks after the closure of the £565m M&G Property Portfolio due to “declining interest in open-ended daily dealing property strategies” from UK retail investors, according to communication from the firm at the time. Canada Life also shuttered its property fund less than two days afterwards.

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