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A-Team Insight Blogs

Northern Trust Provides Daily Valuation of Property Derivatives

Northern Trust announced today that it can offer clients daily independent valuations for complex OTC property derivatives. The product which has been developed in response to an increasing trend for property funds to use OTC derivative instruments, is the latest in a series of enhancements to the suite of services Northern Trust offers real estate fund managers.

The product enables a transparent, daily independent valuation for complex IPD (Investment Property Databank) swaps. IPD is one of the most common benchmarks used for writing property derivative contracts in the UK and covers approximately 10 986 directly held UK property investments valued at around £117 billion.

“Property derivatives are notoriously difficult to value and as a result are written based on a real estate property index, such as the IPD index,” said Sascha Calisan, real estate fund administration product manager at Northern Trust.

“Our ability to now deliver independent valuations for IPD swaps on a daily basis is great news for the real estate industry, as typically the market data for daily valuations is sourced on a daily basis – a challenging task in what is still an illiquid market with few brokers – and is only publicly published once a month.”

Northern Trust provides administration services to over 250 real estate and infrastructure funds and related entities and can offer clients the following outsourced OTC activities:

– Daily independent valuations for OTC derivative instruments including; IPD swaps, interest rate swaps, and interest rate caps and floors

– Active Collateral management

– Trade Capture

– Trade confirmation

– Reconciliation

– Trade event confirmation

– Risk analysis

In addition, Northern Trust also offers a transparency report which highlights the market data attributes as well as the mathematical model and techniques that were used to calculate the price.

“We are seeing activity in the market from two opposite ends of the investment industry. Investment managers holding commercial property portfolios are looking to hedge the financing of these portfolios through real estate derivatives, and are now being joined by an increasing number of hedge funds.” said Peter Cherecwich, global chief operating officer for Northern Trust’s asset servicing business. “This latest product development enables us to cut through the complex data associated with administrating property OTC derivatives and deliver the information fund managers require on a daily basis, helping them make timely investment decisions.”

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