New Star to launch international direct commercial property fund

New Star Investment Funds has announced plans to launch a fund that will offer UK investors access to international direct commercial property.

The new fund, which will be called the New Star International Property Fund, will be the first in the industry to allow UK-retail investors to hold international direct commercial property within an FSA authorised retail fund in a tax-efficient manner.

The decision to launch the fund follows discussions with the FSA, which has granted New Star a modification to the rules. The modification allows the fund to be structured in a tax-efficient manner. New Star plans to launch the fund in early summer with a three-week offer period running from 14 May to 4 June.

The New Star International Property Fund will invest in commercial properties outside the UK, with the initial focus on Western Europe, Central Europe, Japan and the rest of Asia. The fund will be managed by New Star’s property team, headed by Roger Dossett. The team manages £1.9 billion of UK commercial property and almost $1 billion of international commercial property.

John Duffield, chairman of New Star Asset Management, says: “UK commercial property has emerged as a mainstream asset class in the retail investment market over the last five years. This has been largely due to the ability of direct commercial property to add diversification to investors’ portfolios. The launch of the New Star International Property Fund is a natural extension of this search for further diversification.

“Until now the only way that retail fund investors have been able to access commercial property outside of the UK has been through international property shares or REITs. These, of course, lack the low volatility and level of diversification that bricks and mortar funds can offer. I am delighted that through the New Star International Property Fund we are opening up a brand new investment area to UK investors.”

Roger Dossett, head of New Star’s property team and manager of the New Star International Property Fund, says: “The New Star International Property Fund will aim to hold approximately 80% of its assets in direct commercial property. We believe that Continental Europe and Asia offer significant opportunities. We initially plan to acquire buildings in Western Europe, Central Europe, Japan and elsewhere in Asia.

“While many investors are well aware of the New Star Property Unit Trust, which focuses on UK commercial property, they may not know that my team already manages almost $1 billion of international property through a specialist institutional fund. We are highly experienced at acquiring and managing properties in the international arena, particularly in the countries that we are targeting for this new retail fund. We work closely with some of the world’s leading property advisers including CBRE and DTZ to ensure that we acquire properties that match our investment criteria.

“I believe the requirements for successful international property investment are broadly the same as for the UK. The key is to find properties let to high quality tenants on strong leases with good prospects for rental growth. The real investment benefit of going international is the ability to access countries’ property markets at different stages of their economic cycles.”

An important aspect of the New Star International Property Fund is its structure, which has been designed to be as tax-efficient as possible.

This structure means that income from the fund is distributed as an interest distribution as with a bond fund. Eligible investors will be able to receive the income either gross or reclaim tax withheld on the distribution. For example, for retail investors, income paid as an interest distribution is tax free within an ISA, PEP transfer and a SIPP.

Phil Wagstaff, managing director of UK retail sales & marketing at New Star, says: “Initial reaction to the New Star International Property Fund from the intermediary market has been encouraging. The new fund represents the next step in the growth of commercial property as a core asset class, similar in a way to when the first international equity or international bond funds were launched some years ago.

“It is quite rare for something genuinely new to come along in today’s highly-developed investment markets. I believe that the launch of the New Star International Property Fund represents one of these occasions.

“The combination of an experienced management team offering access to international bricks and mortar within a familiar and tax-efficient structure is, I believe, an attractive proposition for advisers and their clients.”