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A fund manager has raised £100M of equity to buy shares in listed UK property companies, a sector it says is undervalued due to “recency bias” and backward-looking valuations.
Catella APAM said it had raised £102M from institutional investors for the Catella APAM Strategic Equities I fund.
Catella APAM is the UK arm of Swedish-headquartered fund manager Catella, a division that has advised on more than £4.5B of assets in the UK and Ireland since its inception.
Catella APAM founding shareholder Simon Cooke and Head of Investment and Research Ben Kennedy will lead the fund’s investment strategy, helped by the firm’s senior asset and development management teams.
The strategy targets undervalued UK-listed real estate companies where underlying asset values have been impacted by recent macroeconomic challenges and shifting demand patterns, Catella said.
The FTSE 350 UK Real Estate Index of UK property stocks is down 8% this year and dropped 31% over the past five years. UK property companies have traded at discounts to the underlying value of their assets, with public markets putting a lower value on portfolios than companies and their valuers.
Several smaller companies were acquired in the past 12 months, either by private firms or larger rivals.
But Catella thinks the stock market is mispricing real estate companies. It said the information it gets from the portfolio of assets it manages can help inform decisions on where listed values are going.
“I believe the listed sector is often undervalued compared to the wider market, as is the strategy, assets, and management teams, particularly following economic downturns,” Cooke said. “The sector currently trades at a significant discount to [net asset value], dragged down by recency bias and consolidated by the backward-looking valuation process.”
Kennedy highlighted the changing nature of real estate companies as a route to finding value in stocks.
“The real estate sector has become more operationally intensive and complex, as asset owners begin to acknowledge their role in providing a service to customers rather than just passively holding assets,” he said. “This is likely to create a more disparate distribution of returns as the gap between winners and losers widens.”
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