The velocity of fund performance coming into and ending 2009 delivered a record-matching 24 percentage points spread in fund returns, delegates at the IPD UK 2009 Benchmark Launch were told yesterday morning. 

Malcolm Hunt, head of client services at IPD, told delegates at the breakfast seminar – held at Allen & Overy’s London headquarters – that the 5th and 95th percentiles returned -8.5 per cent and 15.2 per cent, respectively.

Almost three quarters (75 per cent) of funds delivered a positive total return in 2009, with the most common outcome between four per cent and six per cent.
 
Hunt said: “As expected, the impact of yield adjustments upon capital values was the most important factor in distinguishing between fund returns and their rankings in 2009. Perhaps more surprisingly, the level of shopping centre exposure was the second most significant factor, with vacancy rates ranking third.”
 
The IPD Annual Benchmark total return for 2009, which includes developments and transactions, was 3.0 per cent – 50 basis points lower than the standing investments annual return.

The IPD Universe is comprised of 288 investment funds and captures 12,900 assets worth GBP117bn, which IPD estimates reflects circa 60 per cent of the entire UK professional investment property market. 
 
Hunt’s analysis included an account of the average capital employed throughout 2009, subdivided by activity. The breakdown reveals GBP6bn worth of disposals and GBP2bn of purchases, according to the IPD Annual Universe. 
 
Of the GBP96bn of properties held, the highest weighted contributions to portfolio returns were retail warehouses (12.0 per cent), South East standard retails (10.5 per cent), rest of UK Standard retails (6.7 per cent) followed by South East industrials (5.6 per cent). 

By fund type, the return spread was 8.4 percentage points, led by estates and charities (7.7 per cent) – the top performing investor type for the fifth consecutive year. 
 
Hunt said: “Estates and charities consistent top performance is partly owed to long leases, insulating portfolios from sharpest capital depreciation. But, given that it only reflects 2.5 per cent of the overall Databank, second-placed performers – medium-sized pension funds – are also worth noting, with an annual return of 5.9 per cent, almost double the benchmark return.”
 
In the Q&A which followed the presentations, Neil Cable head of European real estate at Fidelity Investments, said: “The sheer scale of the volatility and risk was so significant last year. Property is an asset class that has to be managed. Clients’ current risk-averse attitude is understandable but, at this stage of the cycle, they should see risk as their friend and capital allocators should appoint managers who understand how best to manage risk and volatility.” 
 
The case for pension fund investment in UK commercial property has become self-evident once again, argued Nick Duff, head of property at Hewitt Associates. 
 
Duff told delegates that Hewitt estimates the entire UK commercial property market is worth around GBP250bn, which proves the scale of the asset class.

Duff said: “At Hewitt we are very positive on the UK. Initial yields – at around seven per cent – indicate that stock is fairly priced. We are expecting quite strong returns over 2010 with maybe a bit of a pull back over 2011. But there is a supply shortage of high quality property, at the same time, there is a lot of uninvested equity on the sidelines, including some of our own clients.”