Property is an asset class that benefits from a growing economy, so as Ireland’s economy grows, so too does its property market. The economic signs remain good for Ireland; the jobs market continues to improve with unemployment forecasted to fall to approximately 5.5% by the end of 2018. In addition, GDP is estimated to be 3.6% for 2018*. These indicators are a testament to the current strength and growth seen in the Irish economy.
So the addition of a property fund made perfect sense and so we began the process of finding a suitable provider. Our remit was to ensure that they have an excellent proposition, a solid reputation and a long, consistent top class performance track record. This led us to an attractive shortlist from which the State Street Global Advisers (SSGA) Windwise Property Fund proved the best fit for our needs.
The Windwise Fund (formerly the BIAM Property Fund before being acquired by State Street) had primarily only been used by SSGA institutional clients which meant it wasn’t largely known by the retail Financial Broker market. These institutional clients are typically large pension schemes and charities, most of whom have had very long standing holdings in the fund.
Our due diligence on the fund identified it as being a perfect fit for our requirements. It’s primarily made up of Irish property, however, there is also an allocation to the UK which adds valuable diversification and helps reduce risk. We were also pleased to learn that the fund has a mandate allowing even further diversification into mainland Europe – a region they would likely look to for new property investments as the Fund continues to grow.
At Zurich, risk is very important to us, particularly when we conduct due diligence on third party providers, and the fact that the Windwise Fund doesn’t use borrowing to increase risk was a key factor for us. We also liked the fact that SSGA are a real property asset manager and Ian Johnston, the current Head of Real Estate, has been involved with the fund for 26 years and has overseen its growth and superb performance in that time.
Zurich policy holders invest in the Property Fund from Zurich which will then invest c. 80-85% in the Windwise Fund. The balance is in Irish Property REITs and some cash to allow for liquidity and to provide daily pricing.
As of 31 March, Windwise has €340m in assets and holds 39 properties. It has been in existence since 1982 and does not have any borrowings. There is currently 21% in UK assets and the managers are happy with this level of exposure to the UK; at present and there is a full currency hedge in place. The core of the fund is a quality Dublin office portfolio and the current yield is a little over 5%. Windwise is actively managed and is currently underweight the retail sector.
Four reasons to invest in property:
Diversification: Investing in property provides asset class diversification. Yields from property funds have a low correlation to other asset classes thereby reducing volatility by spreading investments across a wider portfolio of assets.
Backed by real assets: Unlike investing in other asset classes, investing in property means an investment in physical, stabilised assets such as commercial buildings and land. With this investment, even when properties are vacated, the investor still holds an asset which can generate value by being re-let or redeveloped which in turn can further increase return.
Hedge against inflation: An investment in property can work as an effective hedge against rising inflation as the economy grows, as seen in Ireland today. This is because rental values are driven higher by increased demand for development of both commercial and residential properties.
Strong and stable income: A constant return, in the form of regular collection of rent can yield a stable long term income from an investment in property. This can be further ensured through the active management and diversification of the asset portfolio in terms of geography, length of leases, and quality of tenants.
As we have been rolling out the Zurich Property Fund over the last few months, we have seen advisers using the fund as a part of a portfolio, often alongside our Active Asset Allocation or Prisma Funds. It also seems to have particular appeal for ARF products where income focused funds are well liked.
*Source: Zurich Life, May 2018