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Russell Investment Group Extends Real Estate Capability Into Europe

by Phillip Morton, Investors Offshore.com

13 December 2005


London-based Russell Investment Group (Russell) has announced the launch of its first Global Real Estate Securities Fund for European clients, which offers investors access to a growing asset class through a liquid, regionally diversified vehicle.

Benchmarked against the FTSE EPRA/NAREIT Global Real Estate Index, Russell says that the fund is available in Euro and Sterling hedged share classes. Derek Williams, former head of research at Land Securities Plc, Europe's largest real estate company, will be responsible for private and public real estate securities manager research in Europe and back-up portfolio manager responsibilities.

According to the 2005-2006 Russell Survey on Alternative Investing, European institutional investment patterns in real estate are changing rapidly. Since 2003 there has been a 24% up-tick in indirect investment versus direct investments in land and buildings, growth which is chiefly attributable to increased use of core funds and public real estate securities.

Karl Smith, Director of Real Estate at Russell noted that:

“Historically, direct investing was the primary route to real estate exposure. However, the market has changed dramatically in recent years with the growth of tax-efficient vehicles such as REITs or REIT-like structures. Global real estate securities today constitute around 10% of a $5 trillion global institutional real estate universe. This growth in demand for indirect investment vehicles was instrumental in our hiring of Derek, to help us more directly meet the specialised investment needs of both our European and non-European clients that are seeking investment opportunities in Europe.”

Mr Smith observed that REIT legislation pending in a number of European Union jurisdictions will lead to continued strong growth in real estate investing.

"Global real estate securities funds offer a level of geographic diversification absent from most direct investment strategies. Our global approach offers investors the opportunity to significantly reduce single market risk and volatility by diversifying out of their domestic market," he continued.

“The availability of REITs will also change the way people invest in property. Institutional investors have diversified their equity exposure internationally for years, but most have limited their property exposure to the domestic market," Mr Smith added.

Meanwhile, Mr Williams noted that investors are increasingly looking towards alternative asset classes such as real estate to provide diversified and non-correlated returns.

"Since rental contracts are typically medium to long term and are either directly or indirectly linked to inflation, investors typically gain exposure to higher yields with little correlation to ‘normal’ equity and bond return patterns. This approach is also much less capital-intensive than direct investment, making the asset class available to many smaller investors for the first time," Mr Williams explained.

Mr Williams added that the fund's managers, two of who are North American specialists, one covering Asia and Europe, and one, Australia, offer complementary investment approaches and blend a variety of investment styles.

"When combined, we believe this group of managers provides a more robust investment approach and consistent performance profile than a single manager," he stated.

Russell’s 18 strong Real Estate team has approximately $5 billion of assets under management on a global basis through its multi-manager funds and discretionary separate accounts. Russell’s advisory services in this area include asset allocation, strategic planning, investment research and selection, performance monitoring and portfolio management.

A comprehensive report in our Intelligence Report series examining offshore investment, offshore stock exchanges, and hedge funds is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp

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