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Dial up for commercial property

Seven Dials Financial has launched its first fund, a fund of institutional European commercial property funds.

The Seven Dials European Property Fund will invest in commercial property investments in Western Europe, with the majority of the portfolio focused on Germany, France, Holland, Italy, Iberia and the Nordic region. It aims to provide income and growth, targeting total returns of 10 per cent a year. However, this is only a target and cannot be guaranteed.

Since launch in 2003, the company has made its name through research and says launching a fund was a natural progression of its research skills.

The company decided to focus on European opportunities because although UK commercial property has delivered high returns over the last few years, yields have fallen so investors are looking further afield. Yields are generally higher on the continent and opportunities could emerge in some regions where property markets are less developed than the UK in terms of transparency and the ability to invest.

The underlying funds will hold direct property and will be funds that retail investors are unlikely to have access to due to large minimum investment requirements. Seven Dials says there are over 400 funds investing in European commercial property, which vary in terms of charges and transparency. It is aware of over 15 funds suitable for investment at this stage and intends to build a diverse portfolio so investors are not heavily dependent on one sector or region. However, care will be taken to ensure the fund has adequate exposure to particular areas that look likely to outperform.

The selection process will begin with a top-down analysis to identify sectors and regions that will benefit from economic and market trends. A bottom-up analysis will then drill down to identify fund managers with a strong track record of outperformance and reasonable costs.

Historically the underlying funds have been closed ended, therefore illiquid But increased liquidity should come from new open-ended funds that are making an appearance and the developing secondary market for shares in closed-ended funds.

The main attraction of this fund is in providing a gateway to funds from experienced property managers that would otherwise be beyond the reach of retail investors. The diversity provided by the fund of funds structure is also a bonus.

Some investors may be concerned that a fund of property fund could be expensive. However, Seven Dials is keen on transparency and has always been critical of unreasonable costs, which may provide comfort to potential investors.

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