Con­sider get­ting in this queue

Listed prop­erty has be­come a con­cern for many in­vestors due to ris­ing in­ter­est rates in an econ­omy un­der pres­sure. How­ever, Cat­a­lyst Fund Man­agers’ re­cently added this as­set class. Why is it a good bet?

Finweek English Edition - - MARKET PLACE - Editorial@fin­week.co.za is a co-founder of Gra­didge-Mahura In­vest­ments.

south African re­tail in­vestors re­main un­der­weight to listed prop­erty as an as­set class. This chronic un­der­weight po­si­tion can be traced back for many years, with the first unit trust funds be­ing launched in the early 2000s – al­most 35 years af­ter the first eq­uity fund – and 15 years af­ter the first balanced funds. Even money-mar­ket funds man­aged to crack the nod be­fore listed prop­erty. A cur­sory glance at the as­set al­lo­ca­tion of the grow­ing multi-as­set class sec­tors shows that many fund man­agers re­main chron­i­cally un­der­weight in the as­set class as well.

Ex­po­sure to the as­set class has grown in re­cent times as the sec­tor has ex­panded. The Coro­na­tion Balanced Plus fund has taken a sig­nif­i­cant bet on the sec­tor, with al­most 13% ex­po­sure to the as­set class. How­ever, this is a bet based on val­u­a­tion and the rel­a­tive at­trac­tive­ness of listed prop­erty. It is very likely that this po­si­tion will be sold down some­time in the near fu­ture. Even the multi-as­set funds be­ing brought to the mar­ket by the in­dex track­ing prod­uct providers have low prop­erty ex­po­sure. It is only Grindrod As­set Man­age­ment that has a mean­ing­ful strate­gic ex­po­sure to listed prop­erty, with its sen­si­ble Pay­ers and Grow­ers strat­egy.

The is­sue with listed prop­erty for many in­vestors now is that South Africa is en­ter­ing a ris­ing in­ter­est rate en­vi­ron­ment, and its econ­omy is un­der sig­nif­i­cant pres­sure. There seems to be an over­sup­ply of prop­erty as projects com­mis­sioned in the good times are now be­ing added to the mar­ket. The pend­ing down­grade of the coun­try’s credit rat­ing may also re­sult in poor re­turns from the as­set class in the short to medium term. While an ex­po­sure to off­shore prop­erty may help mit­i­gate some of these risks, in­vestors are also wary of hav­ing to make the switch or de­cide on the ap­pro­pri­ate level of ex­po­sure.

The Cat­a­lyst Flex­i­ble Prop­erty Fund

sec­tor comes from niche prop­erty as­set man­ager Cat­a­lyst Fund Man­agers with the launch of its Flex­i­ble Prop­erty fund in Oc­to­ber 2015. The fund man­agers are able to al­lo­cate be­tween lo­cal and off­shore prop­erty and cash if they feel that there are not enough op­por­tu­ni­ties. The fund is man­aged by Paul Dun­can and Zayd Su­laiman, two sea­soned prop­erty spe­cial­ists with ex­ten­sive ex­pe­ri­ence in man­ag­ing prop­erty man­dates. The ex­po­sure to off­shore prop­erty is via its award-win­ning Global Real Es­tate fund man­aged by prop­erty stal­warts An­dre Stadler and Jamie Boyes. The fund has some po­ten­tial is­sues; firstly it sits in the South African-Real Es­tateGen­eral cat­e­gory, mean­ing that the fund can in­vest a max­i­mum of 25% off­shore. The man­agers would have had more free­dom if the fund sat in the World­wide Multi-As­set Flex­i­ble cat­e­gory. How­ever, given that many lo­cally listed prop­erty coun­ters have large off­shore ex­po­sures, this may not be a ma­jor is­sue for the man­agers. Se­condly, it’s not cheap with a base fee of 1% and a per­for­mance fee of 22.5% of the out­per­for­mance over CPI + 4% p.a.. The bench­mark is rea­son­able given the in­clu­sion of cash in the in­vest­ment uni­verse, but we are in an en­vi­ron­ment where fees are be­ing closely scru­ti­nised. While the fund has a short track record, the long-term track record of Cat­a­lyst as a spe­cial­ist prop­erty man­ager is solid. It has won nu­mer­ous in­dus­try awards for the per­for­mance of its lo­cal and off­shore funds. The ad­di­tion of a flex­i­ble fund makes sense and is likely to be a pop­u­lar op­tion for in­vestors want­ing ex­po­sure to the as­set class, but that don’t want to make tim­ing or domi­cile calls. The queue of in­vestors for the fund is un­likely to match those out­side the re­cently opened Mall of Africa, but I sus­pect that there will be more win­ners in this queue than in that one.

spe­cial­ist prop­erty

Mall of Africa, Midrand

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