Jake Elmhirst from Coller Capital speaks to James Dunn from The Inside Network on what private equity secondaries are. The Inside Adviser
As the biggest ETF provider in Australia, Vanguard has the right to crow about another knockout performance over active equity. But invective commentary is a red flag, especially when it’s based on something as changeable as recent market performance.
The ‘relationship’ fund banking on a 10pc return
Such is the unique nature of Michael Birch’s new property fund, he puts the maintenance of core relationships with property management agents at the heart of his success. Data is obviously key, he says, but having personal connections with the agents that have keys in their hands is where the real conduit for information comes from.
More than almost any other managed fund, Birch believes, success in the rent roll game is predicated on knowing the people managing the asset.
Get things right, and the returns can be tantalizing for investors. The experienced fund manager says he’s targeting a 10 per cent annual return, net of fees and expenses.
Birch’s property fund, the MDC Trilogy Wholesale Fund I, is run as a wholesale yield fund. Formed as a corporate joint venture between Birch’s Murray Darling Capital and the established provider Trilogy Funds, it invests wholly in property management assets and ‘rent rolls’. Essentially, these rent rolls are portfolios of investment property management agreements that can include anything between 100 and 3,000 properties.
The merits of the Australian metropolitan real estate market as an investment need little plumping, but for individual investors a single property or investment in a single area can propose geographic risk. Birch’s fund ameliorates this risk by covering vast tranches of the country.
“The fund has tenants and management agreements across several geographies,” he tells The Inside Investor. “We’re expanding across Australia and focusing on not only buying the right assets but building the right relationships across the board.”
Much of the relationship work Birch does comes between the fund and the people that manage properties, the ones that actually collect the rent for investment properties, as well as doing all the necessary repairs and maintenance plus managing payments back to the fund.
When property agents build these rent rolls, he explains, the relationship you build with that agent will determine your ability to keep those property management contracts on the roll and grow the portfolio.
“Before I started this fund I was looking at the principles around property management, and I worked out pretty quickly that brand, personal relationships and an ongoing referral network were three key elements,” he says, adding that the agent is the key person to have an open line of communication with.
“In the past if someone bought a property rent roll without a significant referral network and brand alignment with a sales team that knows the landlords and knows the local area, they would lose that personal connection,” he says.
The agency Birch chose to work with, the ASX-listed and eponymously name The Agency, has one of the largest networks of property agents in the country, which he says gives the fund scale and facilitates the geographic dispersion of assets. “They have a disruptive sales and property management model with a larger share of the commission going to the agent and low overheads, which means they’re attracting a lot of agents.”
While the numbers are important to conjuring yield, Birch believes it’s the connection with these individual agents and a strong business development team that makes the fund stand out.
“Whereas when you’re running a typical risk management portfolio you rely on data,” he says. “This requires data as well, but it’s also about managing relationships with the agency and relationships with other third parties.
“When you’re looking at real estate groups and speaking to vendors and other stakeholders, you need people who are prepared to roll their sleeves up.”
