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Johannesburg - Investors in South Africa's listed property sector should take care when considering investments in new property funds managed by external asset managers, property analysts have warned.
These external asset managers not only involve additional costs, but can also represent conflicts of interest.
The five new property companies that debut on the stock exchange during the course of this year all have external asset-management companies.
Investec Property Fund listed on the exchange on Thursday. The Triangle Core Property Fund from Old Mutual Investment Group Property Investments (Omigpi), the Rebosis Property Fund, Vunani and the Mergence/Dipula property company are still to list.
Catalyst Fund Managers’ property analyst Paul Duncan said that although the new listings would offer investors exposure to assets that had previously not formed part of the listed property arena, investors should be cautious.
The assets of currently listed property companies are almost all internally managed, except for Premium and Octodec and the property trusts.
The assets of property trusts, which are regulated by the Financial Services Board (FSB), have to be externally managed in terms of legislation. By far the majority of offshore listed property companies are internally managed.
Duncan said the warning arises from the fees charged by external management companies.
Investors, he said, should make sure that they understand what fees they will pay and whether these are justified.
He said any management company that introduces a new investment opportunity to the property sector needs to be compensated, but investors must also be compensated for the conflict of interest that normally goes hand in hand with the use of external management companies.
These asset management companies generally charge a management fee of 0.5% of the enterprise value (market value and debt) of the property company.
As the company acquires more assets and its enterprise value goes up, the fees also increase.
Duncan said this could reach a point where the fees are no longer justified in terms of the services of the asset manager and investors needed to question them.
He also said that the transaction fee payable to the asset manager was unacceptable.
Coronation Fund Managers [JSE:CML] property portfolio manager Anton de Goede said the conflict of interest was that such investments served to benefit the management company rather than the interests of the investor.
In the case of internal asset managers, he said, the interests of management were in line with those of shareholders.
He said that for prospective investors to decide whether they were making a good buy, they should build in a risk premium relative to the income yield.
These external asset managers not only involve additional costs, but can also represent conflicts of interest.
The five new property companies that debut on the stock exchange during the course of this year all have external asset-management companies.
Investec Property Fund listed on the exchange on Thursday. The Triangle Core Property Fund from Old Mutual Investment Group Property Investments (Omigpi), the Rebosis Property Fund, Vunani and the Mergence/Dipula property company are still to list.
Catalyst Fund Managers’ property analyst Paul Duncan said that although the new listings would offer investors exposure to assets that had previously not formed part of the listed property arena, investors should be cautious.
The assets of currently listed property companies are almost all internally managed, except for Premium and Octodec and the property trusts.
The assets of property trusts, which are regulated by the Financial Services Board (FSB), have to be externally managed in terms of legislation. By far the majority of offshore listed property companies are internally managed.
Duncan said the warning arises from the fees charged by external management companies.
Investors, he said, should make sure that they understand what fees they will pay and whether these are justified.
He said any management company that introduces a new investment opportunity to the property sector needs to be compensated, but investors must also be compensated for the conflict of interest that normally goes hand in hand with the use of external management companies.
These asset management companies generally charge a management fee of 0.5% of the enterprise value (market value and debt) of the property company.
As the company acquires more assets and its enterprise value goes up, the fees also increase.
Duncan said this could reach a point where the fees are no longer justified in terms of the services of the asset manager and investors needed to question them.
He also said that the transaction fee payable to the asset manager was unacceptable.
Coronation Fund Managers [JSE:CML] property portfolio manager Anton de Goede said the conflict of interest was that such investments served to benefit the management company rather than the interests of the investor.
In the case of internal asset managers, he said, the interests of management were in line with those of shareholders.
He said that for prospective investors to decide whether they were making a good buy, they should build in a risk premium relative to the income yield.
