Fat Prophets Global Property Fund: Q&A with CIO Simon Wheatley
Fat Prophets has secured former Goldman Sachs banker Simon Wheatley to run its new REIT focussed LIC which will be the first in Australia to invest in listed real estate, paying a half yearly yield combined with targeting global capital growth opportunities. The Fat Prophets Global Property Fund (the Fund) is seeking to raise a minimum of $27.5 million and up to $165 million, with the offer expected to close on September 1.
Fat Prophets has secured former Goldman Sachs banker Simon Wheatley to run its new REIT focussed LIC which will be the first in Australia to invest in listed real estate, paying a half yearly yield combined with targeting global capital growth opportunities. The Fat Prophets Global Property Fund (the Fund) is seeking to raise a minimum of $27.5 million and up to $165 million, with the offer expected to close on September 1.
We speak with industry veteran and Fat Prophets' most recent recruit, chief investment officer Simon Wheatley, to find out what makes the Fund unique to the market, a little about its investment style, and why now is a good time to invest in property via global REITs.
What makes the Fat Prophets Global Property Fund unique to the market?
This is the first Australian Listed Investment Fund (LIC) with a listed Real Estate Strategy. While there are now close to 100 Listed Investment Companies on the ASX, many of them have replicated strategies but none have a strategy of investing in Real Estate Investment Trusts (REITs). Given the REIT sector accounts for a meaningful 6% of the ASX200 Index, this lack of opportunity in the LIC space is a clear market gap which the new fund will fill.
Why own REITs?
REITs are well known as having a high proportion of their return coming from distribution yield which reflects the rent coming from the assets they own and underpins total return. REITs also have much lower volatility than equities, have their share price supported by tangible assets, and in Australia, REITs have outperformed equities 50% of the time over the last 20 years. This means that from a risk return perspective, REITs have a clear place in a balanced portfolio.
What proportion of a retail investor's portfolio would you recommend to be invested into global property?
Around 10-15% of a balanced investors portfolio will typically comprise listed real estate exposure. Investors needs will vary case by case and they should seek their own advice as to what is best suited to them.
Can you tell us a little about the investment style of this fund?
The fund will be simple in structure, to reflect the defensive nature of the assets it will be investing in. It will not undertake shorting, or use debt, or utilise derivatives. It is a simple long only strategy, and will only invest in listed Real Estate Equities. Because it is long only, it will avoid over priced stocks and will invest in opportunities where the share price of a company reflects cheap entry into the underlying property assets which it owns. This value approach will take advantage of the fact that over the medium term, the share price of REITs align with its underlying net tangible asset backing (NTA). As such, buying REITs at discounts to their NTA is broadly a winning strategy. We will overlay this with detailed analysis of the opportunities we identify and invest in.
What do you think is the biggest investment challenge facing retirees and how does the Fat Prophets Global Property Fund help to address some of these issues?
Many investors have a large proportion of their wealth tied up in Australian assets. Most investors will also have exposure to Australian property, typically exposed to residential property. Large Australian institutional investors have shifted their investment portfolios to the international stage. Take for example the Future Fund. It is one of the largest investment funds in Australia, and has over time reallocated its significant Real Estate investment portfolio from an Australian bias to an international bias. Some 70% of the investments in the Future Fund are now in international markets. The new Fat Prophets Global Property Fund will offer investors the first ASX listed opportunity to gain exposure to international real estate markets via major real estate equities in developed markets around the world with 70% international exposure and 30% Australian exposure.
Why now? Isn't real estate expensive?
Australian residential markets are historically expensive which gives the incorrect perception that overall real estate is expensive. Other real estate sectors within and outside of Australia (such as office and shopping centres) offer value opportunities in our view. Some sectors such as US Shopping centres offer compelling value relative to the value of the underlying assets the REITs own.
When does the offer close?
The IPO is scheduled to close at the end of August. Applicants can review the PDS and apply HERE. The Investment Manager can be contacted directly by interested Financial Advisors and Intermediaries for further information at [email protected]
What expertise does the manager have in global real estate equities?
Fat Prophets as investment manager of the new Fund brings significant experience to bear. I am the chief investment officer of the Fund and over the past 17 years have headed international research from New York from 2005-2009 for Goldman Sachs JB Were, and headed Australian Real Estate equity research and Australian and New Zealand Real Estate Investment Banking for Goldman Sachs.
Angus Geddes will be joint portfolio manager. As founder and CEO of Fat Prophets he has a long history of global advice and funds management. The independent chairman of the Fund is also highly credentialed, having run global property securities funds exceeding $1bn for major institutional investors.
