To combat the skewness of the Australian listed property trust (LPT) market, the $13 billion multi-manager arm of ipac has split its portfolio covering the sector into two mandates – along a 70/30 per cent passive/active divide – and appointed new managers to implement them.

Jeff Rogers, ipac’s chief investment officer, said the division of the portfolio into active and passive components, which was implemented last month, was made to “counter the skewness in the domestic LPT market”, which had become dominated by a handful of trusts in the last year.

The listed property universe has contracted as the financial crisis claimed businesses and helped spur merger and acquisition activity among trusts. At March 31, the seven largest listed property trusts (LPTs) in Australia accounted for about 87 per cent of the S&P/ASX 300 A-REIT index.

In this, Westfield Group accounted for 51 per cent of the index, compared to 37 per cent in February 2008.

“This heightened concentration reduces diversification benefits and presents difficulties for active managers to add value,” ipac wrote in an a review of its LPT investment program.

Because of this, ipac took on the role of risk management in its Australian LPT portfolio, “separating the risk management aspect from the stock selection aspect,” Rogers said, by building customised benchmarks for the two new managers and setting ranges within which they can invest in specific stocks.

Vanguard was appointed to run the passive allocation, called the ‘enhanced leaders’ mandate, and will manage the seven largest trusts in the index at levels just below their benchmark weights. It will be responsible for 70 per cent, or about $150 million, of the portfolio.

“The mandate is very specific in that it takes the top off the benchmark holdings,” Rogers said.

Global listed property boutique Perennial Real Estate Investments was chosen to manage a high conviction mandate covering 30 per cent, or about $100 million, of the portfolio. It will actively trade the remaining exposure of the largest stocks and others left aside by Vanguard, and will not be constrained by investing against a benchmark “skewed by market capitalisation,” the ipac note read.

For example, ipac, which already has a large exposure to Westfield through Vanguard, may assign Westfield a weighting of 7 per cent in the benchmark it builds for Perennial.

“They could have a range of between zero and 15 per cent, but should perceive the benchmark weighting for Westfield as 7 per cent. Not 50 per cent,” Rogers said. 

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