Unit trust to be managed in-house
RESILIENT Property Income Fund and its wholly-owned subsidiary Property Fund Managers have agreed to the terms of a transaction that would internalise the management of Capital Property Fund — a property unit trust managed by Property Fund Managers, the companies said on Friday.
This would better align the interests of Capital’s management with investors, and the internal management model was consistent with investor preferences and best practice globally, sister funds Capital and Resilient said.
The parties agreed an amount of R750m would be payable to Resilient, to be settled in Capital units at R10.60 per unit. Resilient holds 10.6% of Capital’s issued units, while Capital in turn holds 5.7% of Resilient’s issued units.
Internalising management is often thought to remove any conflict of interest between management and investors.
As the fees of external management companies are determined, in part, by the size of the portfolios they manage, this could lead to a potential conflict of interest given the incentive to grow the asset base, possibly at the expense of yield.
Amid discussions with Resilient about the internalisation in January, Capital MD Barry Stuhler said it was “best international practice to have the assetmanagement companies inter- nalised — it takes away any form of conflict”. The structure would also make it easier for Capital to pursue a possible conversion to the new real estate investment trust structure, Mr Stuhler said.
Resilient said it had agreed that, after the transaction was implemented, it would maintain its financial assistance of Capital’s equity incentivisation scheme in which Capital’s management would continue to participate.
Resilient’s financial assistance was capped at R250m. Resilient would maintain financial assistance until Capital was legally in a position to implement its own equity incentivisation scheme.
The transaction would not have significant effects on either Capital’s results for the year ended December, or on Resilient’s distribution per linked unit for the year ended December, the companies said.
The transaction is subject to various conditions, including the approval of regulators and Capital unitholders.