Close unveils property fund
Close Asset Management is hoping to reap the benefits of any house price recovery with the launch of its Residential Growth Partnership fund this month.
Through investing in lifetime leases on properties in South East England, fund manager Steven Oliver, who is also a director at Close, hopes to make an annual return of 8.2%.
Close will work in partnership with Homewise, a company with experience in finding homes for tenants over 60.
The close-ended fund has a term of five years and a minimum investment of £20,000.
Darren Saddler, specialist sales executive at Close, says: "There are quite a lot of new funds coming on the market at the moment but what sets us apart is we are not reliant on house price growth to drive the returns.
"While there is no such thing as a guarantee, the previous experience we have shows us there will be a lot of interest in the product."
Close considers its assumed annual return of 8.2% to be a conservative calculation, based on a moderate recovery in the housing market. If house prices remain static over the next five years, investors will still see a 6.9% return per annum.
On the other hand, if the market improves at the rates predicted by experts such as those at Savills, returns will be significantly higher.
Capital Appreciation Trust (CAT) is a similar fund that was run by Close: it made annual returns of 7.4% in the five years before it was sold at the height of the market in 2007. It too was a joint venture between Close and Homewise.
The Residential Growth Partnership fund will work on the same concept of lifetime leases as CAT. A customer approaches Homewise to help them find a home and then pays a one-off lump sum, at a discounted rate, to allow them to live in the property for the rest of their life.
Justin Neal, finance director at Homewise, says: "The concept was created by my father in the 1970s. Once the customer has agreed [the house] meets their requirements we purchase the property and then grant the lifetime lease. We then pass those investments onto the Residential Growth Partnership Fund.'
The discount tenants receive depends on their age, sex and marital status. A typical example would be a 72-year-old couple gaining a 43% discount on the price of their property, with the fund investing the rest.
For each year the property is inhabited, the share owned by the fund will increase in value, since it is more likely the resident will have to vacate early due to ill-health or death. The property belongs fully to the fund once it is vacated and can be recycled (or leased again).
"In five years time we will hope to sell this new fund on," says Oliver. "We expect the fund to be bought by a property company or high-networth investors."
One crucial difference between the Residential Growth Partnership Fund and CAT is the fact that Close will only invest in properties once a tenant has been found. With CAT, this was not the case and fund manager, Oliver, said this created voids where the company was responsible for utility bills and upkeep, which had a damaging effect on its returns.
The Residential Growth Partnership Fund has an initial charge of 5% and an annual management charge of 1.375%. The offer period ends on 11 December 2009.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
Annual management charge
If you put money in an investment or pension fund, you’ll not only pay a fee when you initially invest (see Allocation Rate) but also a fee every year based on a percentage of the money the fund manages on your behalf. Known as the AMC, the actual percentage varies according to the particular fund, but the industry average for active managed funds is 1.5%.