Acucap takes asset management in-house

Posted On Wednesday, 04 August 2004 02:00 Published by eProp Commercial Property News
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It is believed that most analysts prefer internal management structures because objectives are more aligned with unitholders' interests

Marc WainerLISTED property loan stock company Acucap Properties has opted to replace its outside asset-management company with an internal management structure.

Acucap's move, which follows the examples of fellow listed property loan stock companies Pangbourne, Atlas, Spearhead and Resilient, will be welcomed by the market. Most analysts prefer internal asset-management structures as management objectives are more aligned with unitholders' interests.

More importantly, Acucap will scrap its widely criticised assetmovement fee structure. This involves a fee charged for properties that the external asset-management company buys or sells, and is in addition to the asset-management fee, which is normally 0,5% a year of the total value of assets.

Marc Wainer, of Madison Property Fund Managers, the asset managers of Redefine Income Fund, ApexHi Properties, Prima Property Trust and co-asset manager of Hyprop Investments, believes assetmovement fees create a conflict of interest as an asset manager's decision to buy or sell could be swayed by the opportunity to earn a fee.

Wainer feels that as buying and selling are an integral part of an asset manger's role, an asset-movement fee is not justified.

He says that Madison does not charge asset-movement fees in any of the funds that it manages.

Mariette Warner, fund manager of Stanlib Property Income Fund, says that in terms of buying and selling within a company's property portfolio, an asset-management fee amounts to double fees.

But Warner says there could be exceptional cases where such a fee is justified. One is when asset managers have, in addition to their asset-management functions within the portfolio, spent substantial time in assembling a property portfolio that significantly bulks up a listed company's existing portfolio.

Warner says that should be motivated by time and effort over and above what is considered "plain hard work".

She says the effort involved should be the same as that which justifies a promoter's fee. Promoter's fees are paid to the people or promoters who put together new property listings.

Warner welcomed Acucap's move to collapse the asset-movement fee structure.

She says an asset-movement fee structure is "prejudicial to shareholders. It effectively means the company is paying a higher than market price for properties."

Colin Young, fund manager of Old Mutual's South African-listed property funds, says the annual 0,5% asset-management charge covers routine buying and selling in a listed fund's property portfolio.

He believes, though, that a promoter's fee is sometimes justified when a large portfolio of properties is assembled that significantly enhances the value of a company's property portfolio.

"But as far as the routine buying and selling of single properties within a portfolio and the responsibility of looking after the assets, that should be covered by 0,5%," says Young.

Angelique de Rauville, of listed property portfolio management company Provest, which is part of the Investec Property Group, says the payment of asset-movement fees that equates to a percentage of property value could "encourage churn on the part of the asset manager rather than acting as the intended incentive or reward this kind of fee was created for".

"In addition, the amount of work undertaken in a transaction involving a small portfolio is often the same as one involving a large portfolio. Thus asset-movement fees should be transaction-specific, if levied at all."

Acucap Properties MD Paul Theodosiou confirmed last week that Acucap did have an assetmovement fee structure in place, but said the whole external assetmanagement company structure was "being collapsed".

Acucap would in future have no external management company, and all the executives who worked previously for this outside body would now work directly for Acucap.

"All parties have reached agreement, and it's now subject to a fair and reasonable assessment by KPMG in terms of the JSE Securities Exchange SA's requirements," Theodosiou says.

An announcement on the change of asset-management structure will be made once this assessment is completed. "What we want to achieve is a complete alignment between the objectives of management and the interests of shareholders," says Theodosiou.

Last modified on Wednesday, 14 May 2014 12:15

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