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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (7583)	2/19/2007 4:41:07 PM
From: John Pitera	Read Replies (1) \| Respond to of 33421

Morley's ORN Capital launches property swaps fund Friday, January 19, 2007 8:20:06 AM (GMT-06:00) Provided by: Reuters News (adds fund manager comment, rewrites) By William Kemble-Diaz LONDON, Jan 19 (Reuters) - UK-based hedge fund ORN Capital LLP said on Friday that it had launched the first-ever fund specialising in synthetic real estate investment using property derivatives The ORN Property Derivatives Fund will be open to external investors from March 2007 and had already traded Britain's fledgling property swaps market using proprietary seed capital. The firm, majority-owned by Morley Fund Management, said it will initially aim to raise 150 million pounds ($296 million) for the fund, which will focus on relative value in the expanding property derivatives market and target anomalies between it and other property securities. "The whole purpose of this fund is to look for relative value opportunities between the instruments that are out there and between different property sectors," Chris Iley, the fund's manager, said. "And as the property derivatives market expands beyond the UK we can look at relative value between different (national) markets," he said. ORN's fund will initially focus on the UK, where an over-the-counter property derivatives market is most developed and where liquidity is greatest, but the plan was to expand further afield as new markets opened up, he said. "The whole point is to get in early and to be in the market, taking advantages as and when they occur, and to grow with it," Iley said. Britain's pioneering property derivatives market generated 2.6 billion pounds ($5.1 billion) of trades in the first nine months of 2006. NEW MARKETS Although tiny compared with the underlying UK commercial property market or with other derivative markets, volumes are growing rapidly as more investment banks and property fund managers get involved and new markets open up. "Volumes don't tell you everything about your ability to deal but what is encouraging is that different end-users are coming to market, and we're just the latest genre," Iley said. "There's also more two-way flow (of deals) because there are more people out there with different views. At an intial stage of the market property derivatives were just seen as a vehicle to gain exposure but increasingly people are looking at it for hedging purposes," he said. The first-ever tentative French and German property derivative trades were recently carried out and there are hopes among market participants that the U.S. market will take off this year after a slow start. The advantages of using derivatives to go long or short of property markets compared with buying or selling property directly include savings on transaction costs such as lawyer fees and stamp duty. The market in Europe is largely made up of total-return swap contracts, which offer the expected total return on benchmark property market and property sector indexes produced by Investment Property Databank for a fixed period in exchange for the London Interbank Offered Rate (Libor), plus a spread. Morley is owned by insurance group Aviva <AV.L> and is one of Europe's biggest property fund managers with 27 billion pounds in real estate assets under management.