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LaSalle announces creation of property derivatives platform

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LaSalle Investment Management has partnered with BGC Partners to establish a property derivatives capability for clients.  The new offering is expected to be fully operational by spring 2011. Together with BGC, LaSalle will embed the end-to-end systems and processes to empower LaSalle’s fund managers to identify value and execute and monitor trades.

The announcement comes as interest in property derivatives continues to grow with figures showing that trading doubled between Q2 and Q3 2010 to GBP756 million, bringing the year-to-date trading levels to GBP1.5 billion.  According to the IPD, the majority of trading activity came in the more mature UK market, with 194 trades worth GBP1,460 million.

The new service will allow LaSalle’s clients to access the full suite of property derivative products including Notes, OTC Swaps and Eurex Futures.  LaSalle’s fund managers will be able to actively manage portfolio sector weightings, asset allocation and to hedge market downside risk.

Alan Tripp, UK Managing Director, LaSalle Investment Management says: “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. 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 derivative offering will be focused on the important UK property derivatives market, but in setting up the internal processes we have ensured the flexibility to expand the geographic coverage over time.”

Jon Masters, Head of Property Derivatives at BCG Partners says: “We are delighted to be working with LaSalle to create a new property derivatives capability and we believe that such a thorough approach will provide their clients with the latest risk management capabilities and asset allocation tools.”  

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.  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.

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