Investment Management Flashcards
What is capital return?
Appreciation in property value over time, driven by market growth, inflation, and development.
What is rental return?
Regular rental income, impacted by lease terms, tenant covenant, and occupancy levels.
How is total return calculated?
Total return = Capital return + Income return, measured using IRR, NPV, and yield analysis.
What is the Comparable Method in property valuation?
Benchmarks against similar transactions.
What is the Income Approach in property valuation?
Values property based on future income potential.
What is the Residual Method in property valuation?
Used for development valuation.
What is the Cost Approach in property valuation?
Values property based on replacement cost.
What does portfolio management focus on?
Balances risk, diversification, liquidity, and return objectives across multiple assets.
What does asset management focus on?
Maximising value at an individual property level through lease structuring, rent reviews, and capex planning.
What are the key requirements of an investment portfolio?
Diversification, liquidity, risk profile, and return expectations.
What impacts portfolio performance?
Market trends, interest rates, inflation, tenant strength, regulatory changes.
What risks could affect portfolio performance?
Market downturns, tenant default, rising interest rates, legislative changes (MEES, EPC requirements).
How can you mitigate risks to portfolio performance?
Diversification, regular asset reviews, active lease management, hedging strategies.
How do you ensure proper portfolio management?
Regular performance reviews, risk assessments, strategic asset planning, and tenant engagement.
How could BIM be used in asset management?
Improves data-driven asset decisions, lifecycle cost planning, and predictive maintenance.
How do you manage risk for clients?
Tenant due diligence, lease structuring, diversification, hedging strategies, and active asset management.
How do you compare property investments to other classes?
Compared against bonds, equities, REITs, infrastructure, private equity based on risk profile, yield comparison, and volatility.
How do you assess a client’s property portfolio performance?
Net Yield, IRR, NPV, rental growth, occupancy levels, total return metrics.
How can you appraise capital investment?
Discounted Cash Flow (DCF) analysis to assess future value.
What is Net Present Value (NPV)?
Present value of future cash flows minus initial investment.
What is Internal Rate of Return (IRR)?
Discount rate that makes NPV zero.
What is the Payback Period?
Time taken to recover initial investment.
What are the tax rules related to property investment?
Stamp Duty Land Tax (SDLT), Capital Gains Tax (CGT), VAT, Business Rates, Corporation Tax.
What are the ways to invest in property?
Direct investment: Purchasing physical assets. Indirect investment: REITs, property funds, joint ventures.
What is the difference between a regulated and an unregulated fund?
Regulated Fund: Subject to FCA oversight (e.g., UK REITs). Unregulated Fund: Less oversight, higher risk (e.g., private equity funds).
What is a hedge fund?
High-risk investment fund using leverage, derivatives, and short-selling strategies.
What is a private equity fund?
Investment vehicle raising capital to buy and manage assets for value appreciation.
How does Islamic funding differ from traditional finance?
Shariah-compliant finance prohibits interest, speculation, and non-ethical investments.
What is a property fund?
Investment vehicle pooling capital to acquire and manage property assets.
What is collective investment?
Multiple investors pool funds into a diversified property portfolio.
What is the difference between direct and indirect investment?
Direct: Physical property ownership. Indirect: Shares in property funds, REITs, or JVs.
What is a regulated activity?
Financial services requiring FCA authorisation (e.g., fund management, investment advice).
Who is the regulator for financial activities?
Financial Conduct Authority (FCA).
What is the RICS DCF guidance?
Provides best practice for Discounted Cash Flow (DCF) valuation techniques.
Does RICS produce guidance about investment management?
Yes, RICS Strategic Public Sector Asset Management guidance.
Why does property differ from other business resources?
Illiquid, capital-intensive, cyclical, location-dependent.
How does liquidity relate to property investments?
Property is less liquid compared to stocks/bonds due to lengthy sales processes.
What are the benefits of good asset management?
Maximises returns, maintains asset condition, reduces risks.
What is the difference between asset and property management?
Property Management – Day-to-day operational management. Asset Management – Strategic decision-making to maximise value.
What is the asset management process?
- Strategic review. 2. Investment planning. 3. Lease and tenant management. 4. Ongoing monitoring and risk assessment.
How do you prepare for property asset management?
Analyse portfolio performance, set investment objectives, assess risks.
What are the key elements of a property asset management policy?
Objectives, risk assessment, asset strategy, financial forecasting, sustainability considerations.
What is a business case/project evaluation?
Evaluated redevelopment feasibility using NPV, IRR, payback period.
How do you set out your action plan?
- Define objectives. 2. Assess risks and constraints. 3. Identify financial strategy. 4. Monitor and review progress.
How do you communicate the plan to stakeholders?
Written reports, presentations, investor meetings, quarterly financial statements, performance dashboards.
How does the budget process relate to asset management?
Allocates capital for acquisitions, maintenance, capex projects, and portfolio growth.
How do you incorporate sustainability into investment management?
ESG integration, compliance with MEES, EPC regulations, and Green Leases.
How do you review and benchmark performance?
Internal benchmarks (NPV, IRR, yield analysis) and external comparisons (MSCI/IPD indices, market rental growth rates).
What is the role of the FCA?
Regulates financial markets, funds, and investment products.
What is the AIFMD legislation?
Alternative Investment Fund Managers Directive regulates alternative investment funds in the EU.
What is an authorised/recognised fund?
Authorised Fund – FCA-regulated UK fund, open to retail investors. Recognised Fund – Overseas fund approved for marketing in the UK.
What is a Collective Investment Scheme (CIS)?
Investment fund pooling capital from multiple investors for professional management.
What legal structures exist for UK funds?
Open-Ended Investment Companies (OEICs), Unit Trusts, Limited Partnerships (LPs).
What are the benefits of OEICs?
Flexible pricing, daily dealing.
What are the benefits of Unit Trusts?
Stronger investor protection, trustee oversight.
What are the benefits of Limited Partnerships?
Efficient for private equity investments, tax advantages.
What is the main European legislation for funds?
UCITS & AIFMD regulate EU funds.
What is the FSMA?
Financial Services and Markets Act 2000, the main legislation regulating UK financial markets.
What regulations does the FSA set?
Now FCA & PRA regulate markets, covering investor protection, conduct rules, and fund regulations.
What documentation governs the fund manager?
Fund Prospectus, Instrument of Incorporation, FCA authorisation rules.
Who are the key parties in the governance of authorised funds?
Fund Manager, Depositary, FCA, Investors, Independent Directors.
What is the Approved Persons Regime?
Regulation ensuring key individuals in financial services are ‘fit and proper’ to operate.
What are the key responsibilities of the Manager?
Fund strategy, investment decisions, risk management, compliance.
What are the key responsibilities of the Depositary?
Safeguarding fund assets, ensuring compliance with FCA rules.
Who else is involved in the governance of authorised funds?
Auditors, Custodians, Compliance Officers, Investment Committees.
How are investors protected by the UK governance structure?
FCA regulation, independent oversight, capital protection rules.
What is the instrument constituting the fund?
Legal document setting out fund structure, investment policy, governance.
What is a fund Prospectus?
Key document outlining fund strategy, risks, fees, investment objectives.
What are KIIDs, KIDs, Simplified Prospectuses?
Key Investor Information Documents (KIIDs) for UCITS funds, Key Information Documents (KIDs) for PRIIPs.
Are investors entitled to receive reports about the fund?
Yes, annual and interim reports detailing performance, risk, and compliance.
What is contained within the Short Report?
Fund performance summary, asset allocation, key risks.
What is contained within the Long Report?
Full financial accounts, compliance statements, detailed investment performance.
What happens when a change is made to the fund?
Regulatory approval may be required, investors must be notified.
What types of changes can be made to a fund?
Investment policy adjustments, fee structure changes, fund merger or closure.
Are there limits regarding investment and borrowing powers for funds?
Yes, regulated funds have limits on leverage, asset classes, and risk exposure.
What are eligible markets for funds?
Markets where funds can invest (e.g., regulated exchanges, government bonds).
What are the general investment and borrowing powers for funds?
UCITS funds have strict borrowing limits, alternative funds have greater flexibility.
What are the rules regarding stock lending?
Permitted with appropriate collateral, FCA rules apply to protect investors.
How are investors protected against risk from derivatives?
Risk management procedures, leverage limits, FCA oversight.
What is the Risk Management Process?
Framework for identifying, assessing, and mitigating investment risks.
Is the process of buying or redeeming units regulated?
Yes, FCA rules apply to ensure fair dealing and liquidity management.
What is the process of buying and redeeming units?
Investors place buy/sell orders, fund manager processes transactions, pricing set per NAV.
Are there rules regarding the frequency of dealing for funds?
Yes, UCITS funds must offer regular dealing, alternative funds may have longer lock-up periods.
Do any funds operate limited issue arrangements?
Yes, some funds restrict new investor entries to maintain liquidity control.
Do any funds operate limited redemption arrangements?
Yes, hedge funds and private equity funds may have redemption restrictions.
How are funds priced?
NAV-based pricing, single pricing, dual pricing, or swing pricing.
What are the three pricing methods available?
- Single pricing – One price for buy/sell. 2. Dual pricing – Different prices for buying/selling. 3. Swing pricing – Adjusted price based on fund flows.
What is dual pricing?
Separate buying and selling prices including fees and dealing costs.
What is single pricing with dilution levy?
Single price adjusted with a charge to cover transaction costs.
What is swinging single pricing?
Fund price adjusts based on dealing activity to protect long-term investors.
Are investors offered protection during pricing and valuation?
FCA rules ensure transparency, NAV oversight, and independent valuation checks.
What payments can be made out of the scheme property of the fund?
Management fees, transaction costs, performance fees, regulatory charges.
Can performance fees be charged out of the scheme property?
Yes, but must be clearly disclosed and structured fairly.
What charges may be levied on investors when buying or selling units?
Entry/exit fees, management charges, performance fees.
What is the difference between income and accumulation share classes?
Income shares pay dividends, accumulation shares reinvest profits.
What is a currency class unit?
A share class denominated in a currency different from the fund’s base currency.
Are UK funds permitted to launch currency-hedged share classes?
Yes, FCA-regulated UK funds can offer currency-hedged share classes.
What is meant by the term ‘equalisation’?
A method to ensure fair distribution of income between new and existing investors.
What does ex-distribution date (XD date) mean?
The date after which a fund trades without including the next scheduled dividend payment.
What are the reasons for fund suspension?
Liquidity crisis, extreme market volatility, regulatory breaches, fund restructuring.
Who makes the decision to suspend a fund?
Fund manager and depositary, with potential FCA involvement.
What happens while a fund is suspended?
Investors cannot buy or sell units, valuations may still occur.
When should a fund suspension cease?
When normal trading conditions resume.
How often should the suspension be reviewed?
At least every 28 days, per FCA regulations.
How are equity funds taxed?
Capital gains tax on sales, dividend tax on distributions.
How are bond funds taxed?
Income from bonds taxed as interest, capital gains on bond sales may apply.
What are PAIFs and how are they taxed?
Property Authorised Investment Funds – UK property funds exempt from corporation tax.
How are investments in offshore funds taxed?
Depends on reporting status; reporting funds are taxed annually, non-reporting funds taxed as income.
What is Stamp Duty Reserve Tax (SDRT)?
0.5% tax on the transfer of UK shares or fund units.
On what basis would you advise a client to invest in indirect property investment vehicles?
Liquidity, diversification.
How are investments in offshore funds taxed in the fund?
Depends on whether the fund has “reporting” or “non-reporting” status. Reporting funds: Investors taxed on income annually, CGT applied on disposal. Non-reporting funds: Entire gain taxed as income.
What is Stamp Duty Reserve Tax (SDRT)?
0.5% tax on the transfer of UK shares or fund units, applied when investing in certain UK collective investment schemes.
On what basis would you advise a client to invest in indirect property investment vehicles?
Liquidity, diversification, tax efficiency, and professional management benefits compared to direct property investment.
Describe the advantages and constraints of the main indirect investment vehicles available in your market.
Listed REITs – High liquidity, tax benefits, but subject to market volatility. Unlisted property funds – Less volatile, longer-term stability, but lower liquidity.
Describe the interactions as well as lack of interactions between the physical property market and indirect investment vehicles.
Direct market trends (e.g., rental growth, vacancy rates) influence indirect investments. However, listed REITs may react to macroeconomic conditions differently from physical assets.
What are the tax specifics of local Real Estate Investment Trusts (REITs)?
Exempt from corporation tax on rental income and capital gains, but must distribute at least 90% of income to investors.
How do you define property returns?
Capital return + rental income return, measured as total return (yield, IRR, NPV).
What are the various ways of investing in real estate?
Direct investment (buying property), indirect investment (REITs, funds), debt-based investment (property bonds, CMBS), equity-based investment (joint ventures, private equity).
What are the main characteristics of your local investment market and your local letting market?
Depends on region, but typically includes rental yields, supply & demand, planning policies, economic drivers.
How would you explain to a client your role as an asset manager?
Maximising rental income, reducing costs, improving asset value through active management strategies.
What can you do to improve the performance of property as a financial investment?
Lease restructuring, improving tenant mix, strategic refurbishments, optimising financing costs.
Why do investors look at property as an investment?
Stable income, capital growth, portfolio diversification, inflation hedge.
Is direct investment in real property a regulated activity?
No, but indirect investment (e.g., REITs, property funds) falls under FCA regulation.
What investment activities are covered by the UK financial services regulatory system?
Fund management, investment advisory, property securities trading.
Who is the UK’s financial services regulator?
Financial Conduct Authority (FCA).
What is the role of the FCA?
Ensuring fair, transparent, and stable financial markets, regulating investment firms and funds.
What investments fall under the Financial Services and Markets Act 2000?
Collective investment schemes, REITs, derivatives, bonds, financial instruments.
What is indirect investment?
Investing in property via funds, REITs, or structured financial products rather than owning physical assets.
What are ‘regulated activities’ categorised as by the FCA?
Investment management, financial advice, fund operation, insurance brokerage.
What is a REIT?
A publicly traded property investment company with tax advantages, distributing rental income to shareholders.
What types of property investments can be more tax efficient than others?
REITs (corporation tax exemption), PAIFs (no double taxation), offshore funds (tax structuring advantages).
What is property private equity and debt?
Private equity: Direct investment in property companies or assets. Debt: Property-backed lending, including CMBS or development finance.
What is property public equity and debt?
Public equity: Listed REITs, real estate shares. Public debt: CMBS, bonds secured by property portfolios.
What are the most liquid forms of property investment?
Listed REITs, property ETFs, publicly traded real estate securities.
What is a listed property company?
A publicly traded company focused on property ownership and management.
What is a PAIF?
Property Authorised Investment Fund, offering tax efficiency by passing income directly to investors.
What is a JPUT?
Jersey Property Unit Trust, an offshore fund structure for tax-efficient property investment.
What is a CMB?
Commercial Mortgage-Backed Security, a bond backed by a pool of commercial property loans.
What are property securities and derivatives?
Securities: Shares in REITs, property-backed bonds. Derivatives: Financial instruments based on property values (e.g., property index swaps).
What are the advantages and disadvantages of a property investment you have been involved with?
Advantages: Stable rental yield, capital appreciation. Disadvantages: Liquidity risk, maintenance costs.
What is the role of the Property Investment Manager?
Oversees investment strategy, fund performance, risk management, asset allocation.
What is an IMA?
Investment Management Agreement, governing the relationship between fund managers and investors.
What is a mandate?
Defines investment objectives, risk tolerance, and management scope for a fund.
Explain the impact of the National Security and Investment Act 2021 on real estate deals.
Introduced government scrutiny on foreign property transactions affecting national security.
What is the UK Stewardship Code?
FCA-backed guidance promoting responsible investment and shareholder engagement.
Tell me about when you have assisted with a property/asset management activity.
Advised on lease restructuring for a mixed-use asset to improve rental income stability. Aligned with the strategic objective of increasing yield and reducing vacancy risk.
Tell me about how you have worked with other project professionals.
Collaborated with surveyors, legal advisors, and tax specialists to optimise a client’s investment in a retail park. Ensured compliance with lease agreements, tax efficiency, and enhanced rental returns.
Explain the relevant legislative/regulative requirements relating to the management of property/assets.
Financial Services and Markets Act 2000 (FSMA) – Governs regulated property investments. RICS Professional Statement on Real Estate Investment Management – Ensures transparency and best practice. MEES (Minimum Energy Efficiency Standards) – Prohibits leasing substandard properties (F or G EPC ratings).
Explain when you have provided strategic advice at asset/portfolio level.
Advised a pension fund on rebalancing its portfolio to increase exposure to logistics assets. Provided a detailed investment report including risk assessment, projected yields, and market trends.
Explain your knowledge of key legislation and regulation affecting residential property as an investment asset.
Leasehold Reform (Ground Rent) Act 2022 – Reduces ground rents to zero on new leases. Building Safety Act 2022 – Introduces new compliance requirements for multi-occupancy buildings. Renters’ Reform Bill (proposed) – Aims to abolish Section 21 ‘no-fault’ evictions.
What is the impact of leasehold enfranchisement on asset value?
Reduces investment value for freeholders due to potential loss of ground rent income. Can lead to forced asset sales or lease extensions, affecting long-term returns.
How do you assess whether an investment is suitable for a fund you are managing?
Assess location, tenant covenant strength, market trends, liquidity risk, and regulatory compliance. Use metrics like IRR, yield, and capital growth potential.
How did you calculate the cost to repair?
Surveyor’s cost estimates based on material, labour, and inflation-adjusted pricing. Compared to historic repair costs and industry benchmarks.
What is a ‘lettable condition’?
A state in which a property meets legal, regulatory, and tenant expectations for occupancy. Includes compliance with MEES, fire safety, and minimum repair standards.
How would it improve their other investments?
Enhances overall portfolio value by reducing long-term maintenance liabilities. Improves marketability and rental income potential.
Why would it present a high-risk investment in the open market?
Requires significant refurbishment, high vacancy risk, and potential compliance issues. May not attract institutional investors due to condition risks.
Why is it less risk for your client?
Client had a long-term investment horizon and redevelopment expertise. Advised on a phased refurbishment strategy to minimise risk and optimise returns.
What caused demand to change?
Shift in tenant preferences due to flexible working trends and local economic conditions.
How was the market performing at the time of your advice?
Market showed signs of softening, with rising void periods and increasing incentives required to secure tenants.
How could the estate improve cash flow?
Short-term lease incentives to secure tenants quickly. Service charge rebalancing to optimise cost recovery.
What new regulations were coming into effect?
MEES (April 2023 extension) – Requirement for all tenanted properties to meet EPC E or above. Fire Safety (England) Regulations 2022 – New compliance measures for multi-let properties.
Why would your client be interested in buying 94 Mostyn Street?
To prevent further deterioration of a long-vacant unit, protect and enhance the value of surrounding assets, secure control of a prominent retail location, and enable refurbishment and re-letting to generate long-term income.
What is your client’s investment strategy for Mostyn Street?
The strategy is long-term place-making and control, focused on acquiring strategic assets, investing in refurbishment to modern standards, attracting and retaining quality tenants, and supporting the viability of Llandudno’s town centre.
How did you calculate the cost to repair for 94 Mostyn Street?
I instructed Mostyn estate head of maintenance to undertake a pre-acquisition inspection and estimate refurbishment works, which included roof and fabric repairs, internal refurbishment, asbestos removal, and compliance upgrades.
How would refurbishment improve the other investments?
Refurbishment would improve the visual appearance of the parade, reduce the risk of tenant migration, strengthen retail demand for nearby units, and support rental growth and occupancy across the wider estate by enhancing place quality.
Why would it present a high risk investment in the open market of 94 Mostyn Street?
It was considered high-risk due to long-term vacancy, asbestos liabilities, significant refurbishment costs, and leasehold tenure.
How did your client’s investment strategy change?
Initially acquired for long-term rental income, the client later prioritized portfolio rationalisation, choosing to dispose of non-core residential assets due to legislative changes.
What regulations would make it more expensive to hold 12 Cwlach Street?
Tighter EPC and MEES regulations meant significant investment would be needed to bring the property up to standard.
What caused demand to change at 12 Cwlach Street?
Rising interest rates and tighter lending criteria reduced buyer affordability.
Tell me about the fundamental aspects of property returns.
Income return is rental income as a percentage of capital value, while capital return is the growth or loss in asset value over time.
Tell me about the principles of portfolio and asset management.
Asset management focuses on maximizing performance at the individual property level, while portfolio management involves managing a group of assets to balance risk, return, and diversification.
What impacts the performance of the portfolio?
Void levels and tenant default, yield compression or expansion, market rents vs passing rents, capex requirements, regulatory change (e.g., EPC/MEES), and macroeconomic conditions.
