LONDON (Reuters) - Morley Fund Management said it had traded around 500 million pounds ($997.4 million) in UK property derivatives and was looking to trade another 500 million, possibly by year-end.
"We think they are extremely valuable for both the classic reasons of hedging and cash-flow management," said Nick Mansley, Morley's director of property strategy and indirect investment, at the Reuters Real Estate Summit in London on Wednesday.
Mansley said Aviva-owned (AV.L: Quote, Profile, Research, Stock Buzz) Morley -- one of Europe's largest property fund management firms, with more than 30 billion euros ($40.3 billion) in assets under management -- had traded derivatives mainly to gain or sell exposure to the overall UK property market.
He said the UK market was still too illiquid to use for tactical switching between property sectors, such as offices or shopping malls.
The property derivatives market offers mostly over-the-counter trading in swaps based on benchmark total return property indexes for fixed periods, in exchange for the London Interbank Offered Rate (LIBOR) plus a spread.
The vast majority of activity is centered on UK indexes published by Investment Property Databank. The UK market reached a record volume of 2.9 billion pounds in the first quarter -- a tiny amount compared with other derivative markets but one that is rising fast.
The UK market has also helped to spawn embryonic markets in French, German, U.S. and Hong Kong property derivatives.
Morley is open to trying out the less established French property derivatives market, Mansley said, although he was less keen on new German property derivatives, citing valuation concerns with the underlying index.
Three quarters of Morley's assets are located in the UK, but the company has been expanding its presence in mainland Europe and is looking to push into Asia.
(See www.reutersrealestate.com for the new global service for real estate professionals from Reuters).
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