Investment in real estate property funds

Investment in real estate property funds is a means for investors to access the real estate property market without having to invest directly in one or more properties.

Valletta Fund Management Limited (VFM) launched the La Valette Multi Manager Property Fund in September 2005, then the first property fund in Malta. For the period from launch on September 13, 2005, to last May 22, the fund registered an annualised return of 10.33 per cent with a fund size exceeding €80 million.

Property investment displays both the income-generating characteristic of bonds as well as the capital appreciation characteristic typically associated with equities.

Historical statistics also show that real estate property has exhibited lower volatility than that exhibited by equities and bonds. Investors must however distinguish between direct and indirect property funds.

Direct property funds give exposure to actual bricks and mortar, while indirect property funds give exposure to the equity securities of property companies and, as such, the latter investments typically show higher levels of volatility and higher correlation with the equity markets.

Multi manager schemes, which have been available in America since the late Seventies, have recently become popular in continental Europe. VFM introduced the first multi manager equity-based funds in June 2004, with the Vilhena European Multi Manager Fund, the Vilhena UK Multi Manager Fund and the Vilhena US Multi Manager Fund. The basic multi manager concept applies an open investment approach, whereby the fund manager is free to choose the best investment house for any particular asset class, implying that the client not only diversifies the risk across different asset classes but across different investment houses.

This concept, which has been extended to the La Valette Multi Manager Property Fund, allows clients to spread their investments without the time-consuming and costly exercise of selecting both funds and fund managers necessary to hold a diversified portfolio.

Through the multi-manager investment approach, the fund invests in a number of property funds of different investment houses.

In fact, the fund's portfolio comprises real estate property funds that invest primarily in UK and European commercial property investments, managed by different fund managers. As at May 22, the fund's portfolio was comprised of 15 property funds that primarily invest in the UK and/or European commercial real estate property markets, as well as a tactical exposure in the Asian property market.

The main benefits

The fund, which is denominated in euro and gives investors access to a diversified portfolio consisting principally of UK and European real estate properties, aims to provide income and capital growth over the long term.

The fund distributes income twice a year, which makes it ideal for investors wishing to add an income stream dimension to their portfolio.

Returns from property investments are generally stable, since a large proportion of the return is income received periodically through contractual commitments in the form of rents, normally with upward only rent reviews.

The La Valette Multi Manager Property Fund is managed by Insight Investment, one of the largest investment managers in the UK and the investment arm and a fully owned subsidiary of the Halifax Bank of Scotland (HBOS) Group.

Mr Vella is head of marketing at Valletta Fund Management.