Research (Professional Only)

Property multi-manager: the investment case

The property multi-manager investment model is now well into its teens. At Schroders we took on our first client in 1998. Like most teenagers the model has had to cope with growth spurts as well as growing pains: the worst economic downturn in living memory, a 45% peak to trough decline in commercial property valuations and more recently the threat of eurozone break up.

8 October 2013

Anthony Doherty

Anthony Doherty

Fund Manager, Property Multi-Manager

Introduction

The property multi-manager investment model is now well into its teens. At Schroders we took on our first client in 1998. Like most teenagers the model has had to cope with growth spurts as well as growing pains: the worst economic downturn in living memory, a 45% peak to trough decline in commercial property valuations and more recently the threat of eurozone break up. Despite these challenges the model has endured and grown successfully to become a core component of our property businesses. This note explains how.

The case for UK property multi-manager (UKPMM)

Investing with a property multi-manager service should provide three key benefits: consistent total returns through diversification and active portfolio management; access to opportunities which would otherwise not be available; and the outsourcing of administration and governance of the underlying investments. So 15 years on how have we fared?

Providing consistent returns through active portfolio management

The total returns of Schroders UK multi-manager accounts have proved to be more consistent than those of the balanced funds included in the AREF/IPD UK Quarterly Property Fund Index (“the Index”). To illustrate this, the chart below compares the range of returns delivered by balanced funds in the Index with the best and worst performing multi-manager mandates across Schroders 30+ accounts. Taking the past year as an example, an investor might have chosen the best performing balanced fund and achieved 10% total returns. Then again they may have selected the worst performing fund and received -10% total returns. In comparison, for multi-manager investors a more consistent range of performance has been delivered, and this pattern has held over all time periods.

This is a result we should expect. One of the key characteristics of a multi-manager portfolio is diversification, not just in the breadth of underlying assets afforded but also of the managers and investment houses which drive the performance of those assets. A good multi-manager should be able to avoid the worst performing funds, and at the very least only have part of his portfolio exposed. The extremes of performance should therefore be avoided.

Greater consistency of returns through diversification is one thing but can multi-managers add value over and above the fees they charge? In the chart below we have shown the entire total return history of Schroders UK Property Multi Manager investments net of all management fees since the inception of our multi-manager business (black line). This is compared with the performance of the index and the best and worst performing funds within the index over the same time period. It shows that in addition to avoiding the extremes of performance provided by the best and worst performing balanced funds, the UK multi-manager investments have also outperformed net of fees.

So how has this been achieved? A multi-manager adds value in two ways: selecting outperforming property funds and positioning the portfolio towards the best performing property sectors (and away from the worst).

Selecting the best property funds

The table below shows that most property fund managers have peaks and troughs through a cycle. Since June 1999 eleven of the largest fifteen balanced funds have claimed the title of best performing property fund over a twelve month period. However, nine of the same fifteen funds have also had the less favourable accolade of being the worst. Of course this analysis also has an element of survivor bias as some of the balanced funds which have performed particularly poorly are no longer in the index. One balanced fund is no substitute for another – each has its own unique assets and investment characteristics. A successful multi-manager should understand this and be able to assess which fund is likely to outperform at a given point in the property cycle, managing allocations within his portfolio accordingly.

Important Information:
The views and opinions contained herein are those of Schroder Property Investment Management Limited and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. For professional investors and advisors only. This document is not suitable for retail clients.

This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Property Investment Management Limited (Schroders) does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Schroders has expressed its own views and opinions in this document and these may change. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.
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Important Information: The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.