Pengana Capital has launched a fund built to capitalise on anticipated merger and acquisition activity and value opportunities within the listed property trust (LPT) sector.

The Pengana opportunistic listed property fund, managed by Tim Shaw, director of research and strategy at Pengana, will be launched this month. Shaw said that between one-quarter and one-third of current LPTs could merge as listed entities or be taken private by unlisted buyers in the next few years. “We’re looking for investors who can move quickly,” Shaw said.

He said that externally-managed LPTs, usually run by investment banks or another entity external to the assets, would become susceptible to M&A activity (perhaps seeking out potential unlisted buyers) as liquidity continued to dry up and performance fees became more difficult to generate. He expected unlisted capital to become more dominant in the real estate market – and that those with it would use it since good buying opportunities for property assets should emerge. “We will see more and more unlisted money coming in,” Shaw said.

He said these opportunities would emerge and play out within the next three years. “It’s difficult to tell when M&A will happen. It will happen whenever debt comes back.” Shaw also expected certain LPTs to recover from low valuations, “reflecting an over-selling of quality”. “Some stocks that you look at, like Mirvac, don’t deserve to be sold down like they have been.” While the fund was designed to be opportunistic and to move quickly, it was not a ‘vulture’ fund since it would avoid distressed LPTs.

He did not expect the valuations of the good assets held by LPTs to fall. “I’d expect asset values for prime property assets to remain intact. We’re in a credit crunch, not a property crisis.” Shaw will be supported by Pengana’s Sydney and London offices. At least 75 per cent of the fund will be invested in the Australian market, in a selection of between seven and 15 stocks. It will be seeded by Pengana.

Mandates to the fund would be locked-in for a three-year term, and it aimed to return 18 per cent, before fees, to investors. It would charge a 1 per cent base fee and 20 per cent of performance above cash. The manager has been presenting the fund to asset consultants and institutional investors in recent weeks.

Before joining Pengana in December 2007, Tim Shaw was joint-head of real estate investment banking at Deutsche Bank.