How Henderson resuscitated New Star UK Property

When Henderson bought New Star Asset Management in 2009, the heavily advertised £2 billion New Star UK Property unit trust was in bad shape after being hit hard by the collapse in the real estate market.

The fund was coming off the back of a -22.3% loss in 2008, which followed on from a -19.6% decline in 2007, after the UK commercial market contracted sharply. But this underperformance has since been turned around by Ainslie McLennan and ex-New Star manager Marcus Langlands Pearse who took over the fund in September 2009.

Now in its third guise after originally being launched by Edinburgh Fund Managers in 1999, the renamed Henderson’s UK Property unit trust  has bounced back to deliver three straight years of positive returns.

‘Marcus and I are different in many regards; it was like light and dark coming together when we started working,’ says McLennan. ‘My background is in institutional property investment so I look for developments offering as robust an income stream as possible, while Marcus is very ideas-driven and will look at boarder trends in the market.’

Key to this institutional approach is a keen focus on getting the right tenants in on the best leases.

‘They have to tick every box for us. In this part of the cycle your tenant is everything, and we use a lot of credit analysis on ours. For example, with one tenant we recently talked to Henderson’s fixed income team to find out what the company’s bonds were doing,’ she says.

According to McLennan, the rising number of distressed sellers coming onto the market presents both challenges and opportunities for UK property fund managers.

‘There is significant mispricing in parts of the secondary market resulting from owners being forced to sell, particularly banks. We recently bought a building in Edinburgh from a distressed seller, more and more deals look like that in the market,’ she says.

She adds that while it is possible to find prime property at knock-down prices, banks are still holding onto the best quality buildings.

Moreover, any resulting increase of non-core real estate being pushed on the market is being seen as a worrying trend in the current climate.