Active fund management explained

Active fund management in the current environment 

Commercial property investment is a long game, which means over time your investments will likely encounter different property markets and economic cycles.

Over the last decade, investors sought regular income during a low interest rate environment and this demand led to substantial increases in asset prices across many investment sectors, including commercial property.

Central bank response to high inflation has been to rapidly raise interest rates, this is impacting to various extents right across the economy. From a commercial property perspective, interest costs are usually the largest single expense for investors. Our priority during periods of economic volatility is to both navigate the market conditions presented, and continually focus on optimising the total returns of your investment.

At times, this may include the divestment of properties to realise optimal returns or to mitigate against near-to-medium term investment risk. In addition, we want to ensure we remain well positioned to capitalise on new investment opportunities that may present themselves.

Long-term returns are underpinned by an active management strategy which sees the Oyster team keep a firm focus on the current and future income and expense outlook of our funds. 

We focus on managing properties with stable tenants with the ability to deliver rental growth through various lease provisions whilst actively managing the properties and tenants to identify new leasing income opportunities.

Fund expenditure is actively controlled by regularly reviewing underlying capital expenditure, non-recoverable expenses and the cost of borrowing, and where possible, both costs and increases to these costs are minimised to enhance the performance of your investment.

Short term measures, long-term benefits

Reducing the impact of increasing costs has been a particular area of focus in recent times as interest rates continue to place pressure on funds through rising borrowing costs.

At times it’s important that our funds are appropriately geared to enhance returns for investors however equally it is important for Oyster to be agile and responsive to changing market conditions. We regularly review our gearing exposure relative to property values and debt servicing costs, so we can make proactive decisions to support long term investment returns.

Over the coming months as market conditions continue to have a material impact on many investments, you may see Oyster implement various interest rate hedging strategies or make one-off debt repayments to reduce the borrowing costs for a fund. When required, these measures will be employed to protect the overall value of your investment and to maximise your total returns over the long term.

Utilised by most active fund managers across many sectors, these short-term management solutions may include reductions or temporary halts in distribution payments and redemptions, asset sales and/or capital raising.

While some of these strategies, like temporary changes to distributions, may create short-term disruptions for investors, our experience is that they can be highly effective in optimising total returns and protecting the value of your investment over the long term.

Capitalising on opportunity 

While cash redeployment can support short-term debt repayments and cost reduction, it may be used to fund strategic capex projects too.

Current property market conditions and rising interest rates are putting pressure on some owners, who may look to sell their properties at better prices than we have seen in recent years.

Over the coming year, our team will be monitoring the market with a view to capitalising on these conditions and it is important our funds are well placed to take advantage of strategic acquisitions when the opportunities arise.

For more articles and updates, download the February 2023 Oyster Update Newsletter.