LaSalle Investment Management (LaSalle) has partnered with BGC Partners (BGC), a global intermediary to the wholesale financial markets, to establish a property derivatives capability for clients.
Together with BGC, the real estate investment manager will embed the end-to-end systems and processes to empower LaSalle’s fund managers to identify value and then execute and monitor trades. LaSalle see clear long-term benefits to clients by facilitating access to property derivatives and want to be ready to take advantage of opportunities as they arise.
In terms of investment strategy, derivatives can be used tactically to tilt the portfolio towards favoured sectors or away from those expected to under-perform in the short-term, with reduced performance drag associated with the trading costs of employing a similar strategy using the direct market. They can also help address overweight exposures to sectors, negating the need to sell assets that an investor may wish to retain for the long term. Hedging can be used to mitigate the impact of falling market values by selling a derivative on an index when it is expected to fall. Finally, in a rising market when it is difficult to access physical properties at appropriate pricing, buying a derivative can be used to gain property exposure whilst effectively ‘locking in’ the prevailing market.
The new capability will allow LaSalle’s clients to access to a range of property derivative products as appropriate. LaSalle’s fund managers will be able to actively manage portfolio sector weightings, asset allocation and to hedge market downside risk.
‘We do not believe that property derivatives will replace investment in direct real estate but rather that they will equip fund managers with another risk and portfolio management tool,’ said Alan Tripp, LaSalle’s UK managing director. ‘There appears to be appetite for this sort of diversified strategy. The market is developing, and we want to offer our clients the ability to access this market as and when appropriately priced opportunities arise.’
Initially LaSalle’s focus will be on the important UK property derivatives market, with the aim of expanding the geographic coverage over time.