There are numerous elements to consider when developing new fund products. The fund structure, target returns, leverage, fees, governance and oversight are all important. Every investor will also want to understand the manager’s competencies, track record and investment history. The thematic, types of assets being sought, pipeline of opportunities and market conditions are all also vital.

In this Insight’s ‘In conversation’, we ask Danya Pollard, who is responsible for Product Development and Capital Solutions at Cromwell, about her five key considerations when establishing new Investments and Funds.

1. Understanding your target investors and return expectations

It is crucial to understand the ever-changing investment landscape with economic, political and social impacts, themes and considerations at the forefront of our strategies. Cromwell’s Capital team spend a lot of time understanding these considerations. We then look to create and develop long-term strategic and tactical investments for investors based on their risk-return appetite and performance requirements.

Real estate as an asset class provides an attractive long-term risk-return profile, particularly when compared to bond yields. The tangible nature of the assets also gives rise to stability and value in uncertain macroeconomic environments, and many investors are looking for certainty within the current environment.

We objectively review sectors and markets and provide investors with access to specific investments which represent a good match for their requirements and support sustainable long-term income streams. In essence, ‘Conviction’ in the investment strategy, supported by in house expertise and experience, is at the heart of what we do, and how we operate.

2. Leverage - Why is debt important?

Simply put, leverage refers to the use of debt or borrowed funds to amplify returns from an investment or project. Therefore, investors use leverage to multiply their buying power.

Cromwell has an in-house specialist Capital Markets and Treasury (Debt) team. They continuously review the cost of debt, and accordingly, look to source and utilise debt efficiently from the start of, and throughout the life of an investment. The use of debt contributes as a source of capital, and helps you to achieve the targeted return on equity but it is important to achieve the right balance of debt as excessive gearing can increase your overall risk.

3. Alignment of interest

As a part of the ‘Invest to Manage’ strategy, Cromwell, as a Fund Manager, seeks to align its interests with that of its investors. The best way to achieve this is for the Manager to be an investor itself, by way of balance sheet commitment, into the product and investment strategy. This ensures focus of direction throughout the life of an investment.

‘Alignment of interest capital’, as it is called, provides investors with comfort, and shows Cromwell’s transparency, commitment and conviction to the investment strategy. Investors know that decisions are taken in the interest of all investors. This is at the heart of who we are and what we do.

4. Good pipeline of opportunities

A good pipeline of investment opportunities starts with a deep understanding of the markets to be invested in, and buying ‘right’, in accordance with the Fund’s Investment Strategy.

The ability to uncover opportunities is important to success. Identifying the right assets in the right locations, at the right time, and, most importantly, at the right price are key. Cromwell’s Fund Management and Transactions Team are highly disciplined in their approach to asset selection and are always supported by a detailed investment analysis of the opportunity from our Research team.

Cromwell has a unique and substantial footprint in Europe , possessing extensive local networks with the proven ability to source good quality assets off market, and also execute on transactions at speed. As a vertically integrated platform, we understand the occupier landscape across countries and have longstanding and strong relationships on the ground, all of which translates into the ability to offer investors unique investment opportunities.

5. Expertise and experience

Cromwell is a diversified real estate investor and manager with over 20 years of experience, diversely spread across a range of sectors including Office, Retail, Industrial/Logistics and Property Securities with a total AUM of A$11.9. In Europe, Cromwell’s strength lies in its local knowledge drawn from 200+ people in 19 local offices across 11 European countries (as at December 2019).

This powerful combination of experience and expertise guides Cromwell’s fund and investment strategies and has resulted in success through the identification of the right opportunities for investors and also understanding what challenges may lay ahead (and how to mitigate those challenges).

Finally, Cromwell’s robust governance processes ensure that all risks are reviewed, monitored, actioned and reported on a regular basis by the in-house Investment and Real Estate Committees. This is a requisite for any institutional investor. Experience is crucial to success, as real estate often involves investing over long timeframes and multiple economic cycles. Investors want to be reassured that their capital is in safe hands.