Fund Strategy

Fund StrategyObviously, any potential investor in a fund should be comfortable that the fund’s objectives and strategy are suitable for the investor’s requirements. To that end, the investor should seek to fully understand the proposed fund itself by determining its expected composition with regard to such matters as: geography, sectors, development exposure, tenant diversification, tenant covenant exposure and any indirect exposure.The investor should also make sure the fund structure is appropriate for the investor’s requirements. If the strategy makes use of leverage, the investor should seek to understand whether this is passive or dynamic and any potential risk and additional volatility to returns this may bring. Similarly, if hedging is utilised, understand the potential gain or loss from such non-real estate factors.It is essential for the investor to fully appreciate what the strategy is, how the fund management team add value, the breakdown of returns between income and growth, and where those expected returns are coming from; whether the focus be on capital value growth through active asset management, driving rents higher by improving the real estate, or on speculatively developing new space, as for two examples.Listed below are a set of questions that should help draw out this information:

What is risk profile (core, core+, value-add, opportunistic)?

Provide a summary of the investment objectives and the investment strategy (including target returns, gross and net and income distribution of the fund).

What is the expected portfolio diversification of the fund including investment restrictions/guidelines?

What are the target sector / regional / geographic weightings?

Does the fund provide income, what is the expected income returns, and how often do distributions occur?

What type of structure will the fund use: outline of summary terms in regard to investor liquidity, duration of fund or lock-in period, expected timing of investor commitment drawdowns?

Explain the leverage strategy of the Fund (at both fund and asset level if applicable). Highlight the impact of the leverage strategy in both upside and downside return scenarios.

Explain how the management team will add value and generate returns for investors?

Explain the hedging strategy of the Fund. Please explain the impact (in regard to cost) of hedging, and where unhedged please explain the impact in both upside and downside scenarios.