Australia looks set to introduce the world’s first property index – one which can provide a benchmark for portfolio performance and can be used as the basis for the development of publicly listed property derivatives.
Hailed as a breakthrough in investment management, it is being developed by Aus-tralian Indices and Towers Perrin following their completion of a six-month fea-sibility study, funded by National Mutual.
If all goes well, the index could be up and running in early 2001, says Austr
Australia looks set to introduce the world’s first property index – one which can provide a benchmark for portfolio performance and can be used as the basis for the development of publicly listed property derivatives.
Hailed as a breakthrough in investment management, it is being developed by Aus-tralian Indices and Towers Perrin following their completion of a six-month fea-sibility study, funded by National Mutual.
If all goes well, the index could be up and running in early 2001, says Austra-lian Indices executive director Ray Gatiss.
“People have tried similar indices before and failed, particularly in Europe. But those who tried were bankers and brokers. No one talked to the property peo-ple,” says National Mutual general manager of property Martin Hession.
“This time it is the property industry building the index, although the rest of the financial industry will be consulted.
“One of our aims is to protect the property industry and bring it in line with other asset classes so that it keeps its place in the modern portfolio going forward.”
Towers Perrin senior asset consultant Ken Atchison believes that once developed, the index will change property portfolio management in Australia.
“There are numerous indices currently available, but none that are suitable for use as a benchmark because they do not fully reflect the market,” he says.
“Conceptually, we can now develop an index that reflects the universe of invest-ment grade property – an index that is as effective in property as the All Ordi-naries Index is in the share market.”
Atchison says the benefits to the industry will include greater ease in altering the level of exposure to property with the cost of such alteration reducing from over 5 per cent to less than 0.1 per cent.
According to Gatiss, the index will have a different focus to those indices cur-rently available.
“It will act as a continuous proxy to the property market, which will enable the development of a futures contract that can be listed on a major exchange,” he says.
However, Hession cautions that if property futures are to succeed, they will need widespread support from the industry.
“Unlike shares and fixed interest managers, property managers holding direct
property are not able to change their portfolios readily by buying or selling futures contracts,” he says.
“This inflexibility can have dire consequences on portfolio performance when a major correction occurs, such as in the early 1990s. The possibility of a fu-tures contract will give added flexibility to property managers actively manag-ing their portfolios.”
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