Our approach to maximising investment performance is to identify the key areas for adding value and to have a structured approach to maximising the opportunity in each of these areas, as well as to risk management. The key areas have been identified as:
All members of the KFIM team have a visible and active presence in the market. This not only maximises our access to investment opportunities but also provides up to date information on key market measurables such as rental values and yields; meaning that we are well placed to provide comparative value assessment between potential acquisitions.
Our objective is to have a high exposure to those sectors of the market that we forecast to outperform and to have a relatively low or zero exposure to those parts of the market that we believe are likely to underperform. The degree of risk within the market changes throughout the property market cycle and we look to adapt the structure of the portfolio to reflect this change; for example, as the risk increases, we would look to move the portfolio to a more defensive position. It is important to note that these changes do not entail large scale transactional activity and tend to affect a relatively small proportion of the portfolio.
Each asset also has a detailed business plan which not only identifies the strengths, weaknesses and opportunities of the asset itself but also categorises it in terms of importance to the wider portfolio; rental growth assets, income assets or added value (pro-active management) assets. This process allows us to ensure that the portfolio is appropriately balanced to reflect a client’s individual risk appetite.
The business plan also identifies opportunities to pro-actively add value to the asset by, for example, improving the physical quality of the building, changing planning designation to a higher value use or changing the nature of the risk associated with the investment e.g. improving the quality of the tenants or increasing the length of the contractual cash flow.
With the average lease length on UK property being in decline, those fund managers with a proactive approach are likely to have a distinct performance advantage. A key part of this is to have a regular dialogue with tenants with the purpose of assessing whether the building remains “fit for purpose”. This allows us to take the initiative with regard to a tenant’s occupational needs by, for example, relocating them to a more suitable sized unit.
We measure risk at three separate levels, these being market, portfolio and property specific. It is important to stress that our definition of risk covers the risk of potential capital value loss in addition to market volatility.