‘How we kept our property fund open’

The commercial property market was hit hard after the EU referendum, leading to many large funds closing their portfolios, effectively locking investors in. The Kames Property Income fund remained open, however. It went into the Brexit period with 33pc of the fund in cash to meet redemption requests. It also imposed a “fair value adjustment” – in effect, an exit fee – of 10pc at its peak. It removed this adjustment at the end of September.

An investor who remained in the fund throughout the Brexit period to the present would have lost 1.8pc, according to FE Trustnet, the investment analyst. However, if they had sold at the end of September, just before the adjustment charge was scrapped, they would have lost 8.8pc.

David Wise runs the fund with Alex Walker. However, Mr Walker is leaving the company in December, to be replaced by Richard Peacock, who joins from Aviva Investors.

Mr Wise told Telegraph Money about his views on the property market, how holding high levels of cash will affect performance and the hardest month of his working life.

How did you manage the fund through Brexit?

We escaped the worst of it and were one of the few that stayed open through the post-Brexit period. But July was one of the most challenging months of my working life.

While, in general, we are very focused on the individual assets, we’re not afraid to make some big calls when we need to. One of those was on June 23: we were sitting on 33pc in cash and other liquid investments, by contrast with very low levels at one or two major competitors.

However, those cash levels went from 33pc to 15pc at our lowest point in the Brexit aftermath. But about 50pc of the money that went out of the door in that panic period has actually come back in from those same investors.

Have you sold any properties since Brexit, and what were valuations like?

We sold four post-Brexit, all either at or above the valuations we had pre-Brexit. I’m not saying we could have sold every asset above pre-Brexit levels, but we believe smaller assets are more resilient, and those four sales are the hard evidence of that.

What’s the outlook for the UK property market?

Brexit does cast a shadow. Across the market as a whole valuations are down by around 5pc, but that masks some variation.

If you look at London, perhaps the area most exposed to Brexit, valuation falls have been greater, although there has been some underpinning from the fall in sterling. London tends to lead the cycle in real estate, and London is getting pretty late in the cycle, so one can’t see rents rising much further.

London is a very expensive place, but it is likely to get cheaper, although I don’t see it falling off a cliff.

In general, we are buying in locations that are fundamentally cheaper and can give us higher income returns, typically in big northern cities such as Manchester and Leeds.

Brexit caused many to shut their doors – but not Kames Property Income. Its manager tells Laura Suter why

How does your investment strategy differ from your peers?

We invest in properties worth around £5m-£20m, so smaller assets than our peers. The returns and liquidity at the lower end of the market are more attractive. It means we will never be able to take the fund beyond £1bn, so we can’t become one of the big funds, but we don’t want to.

Do you worry about the effect of high cash levels on performance?

Our cash level is currently 30pc. If I were holding hefty cash levels for five years it would be very damaging to returns, but I don’t anticipate that we will have 30pc cash well into next year.

I am happy with that cash level. It provides some buffer if there are any more Article 50 bumps in the road, but it also gives us firepower to take advantage of opportunities.

We tend to do a lot of buying around Christmas, when other people in the property market put their feet up.

Do you have your own money in the fund?

Yes. I don’t want to say exactly how much, but a reasonably significant sum.

What would you have done if you hadn’t become a fund

manager?

I did a degree in zoology and before I got into real estate I had a position to research the malaria parasite.

How to buy the fund as cheaply as possible

The fund has a total cost (the “OCF” or “TER”) of a year. Be sure to buy the right “share class”, which is “B”. The investment shop through which you buy the fund will also levy a charge. Some will charge

0.96pc

a percentage of the amount invested, others will apply a flat annual fee. Our colour coded tables at

telegraph.co.uk/ investing

will guide you to the cheapest fund shop for your circumstances.

www.telegraph.co.uk/funds