UK market producing ‘attractive’ secondary deals

A UK investment director from Kames Capital, formerly AEGON Asset Management UK, says that despite the risks involved, his firm is starting to see ‘attractively priced’ deals in the secondary property market.

The UK property market is beginning to see some attractively-priced property deals, according to an investment director at Kames Capital, formerly AEGON Asset Management UK.

David Wise, who is investment director at the firm for the UK, said that despite the risks involved, bargains could be found.

The statement comes as the UK market continues to be dominated by less risky investments, especially as international property investors seek out central London assets.

Wise did warn that that managers should be “erring on the side of caution” and needed to be willing to “pinpoint specific investment opportunities” rather than relying on sector calls. However, he went on to say that while “extreme caution” was necessary, there were some attractive deals that were not specific to one sector. “Managers have to look at stock-specific characteristics rather than making large asset allocation calls,” he said, adding that the firm’s open ended, Active Value Property Fund was now actively considering a number of secondary properties with yields of more than 10 percent.

When picking locations for secondary-market properties, Wise said he preferred to look outside of central London .“Anything outside London is more of a challenge, but I am a stock picker and I like to dig around in situations where there are not a lot of other buyers. These are the markets where you will find a deal and generate alpha.”

The property market is offering investors some protection against the volatility seen in the equities markets, according to Wise. “Property has been viewed more favourably relative to other asset classes in the last three months,” he said. “It does not have the volatility characteristics of the equity market. It is paying a yield of 6 to 7 percent and a manager does not need to be doing too much or taking too much risk to get a decent long-term return.”

Equally, Wise noted that international investors were continuing to buy prime central London property assets, despite recent uncertainty. “Oversees investors are continuing to pick the UK when looking for property on the back of the UK being seen as a highly transparent and liquid market. International investors are sticking with super-prime properties which many view as akin to gold – as well as other parts of the markets – despite the compression in yields in some central London locations.”

Edinburgh-based Kames Capital launched in September having traded as AEGON Asset Management UK. It manages £49 billion (€57 billion; $78 billion) of fixed income, equity, property and multi-asset investments for individual and institutional investors in the UK, Europe and Asia.

In October it hired Mark Bunney, Matt Day and Tony Yu, the UK team of ING REIM’s Osiris Property Fund, a global multi manager platform. Phil Clarke is head of property investment having joined in 2007 from Aviva  Investors where he was head of specialist property funds. Wise joined the same year from Aviva where he was was property investment director.

In addition to the Active Value Fund, Kames also manages the Kames Target Healthcare Fund which specialises in high-end care and acute nursing care facilities.