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Orn Capital prepares for property derivative take off

Fund hopes to expand ex-UK investments quickly.

Euromoney Liquid real estate March 2007 

Orn Capital, the hedge fund manager backed by Morley Fund Management, has launched the first property derivatives-only hedge fund. Its move reflects the rapidly expanding property derivatives market.

"This fund will focus on relative value in the property derivatives market. We will look at the implied valuations for property returns and when there are anomalies in the swap spreads over the Investment Property Databank (IPD), due to shifts in market sentiment, we will capitalise on these movements," says Chris Iley, portfolio manager of the Orn Capital fund which is aiming for returns of 15% with 7% volatility. Iley hopes to raise £100 million before the end of 2007.

The fund will initially invest in UK derivatives based on UK property indices established by the IPD with the aim to expand into Europe as the market spreads.

Before last year only a few players had used the property derivatives market as an investment, instead of just using them as a tool to hedge existing long positions by off-setting short positions. But the market has reached a tipping point, and recent months have seen property and liquidity reach new levels, which has sparked interest amongst the brokers and surveyors.

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