Unlocking the potential of property investment while minimising the hassle of ongoing management has long been a goal for savvy investors.
Managed funds offer a solution that combines the benefits of property as a wealth creation vehicle with the ease of passive investment.
In this article, we’ll explore what managed property funds are, how they work, their potential benefits, and considerations for investors looking to diversify their portfolio.
What are managed funds?
Managed funds operate by pooling capital from multiple individuals or entities to collectively invest in an asset, or a portfolio of assets.
Such assets can include commercial properties and residential developments, which are usually beyond the financial reach of individual investors.
These funds are managed by professional fund managers who oversee the research, acquisition, and management of all assets within the fund’s portfolio, and make investment decisions on behalf of investors based on their property expertise.
Managed funds offer investors the opportunity to access high-quality real estate investments, without the stresses of the acquisition and ongoing management of the fund’s asset(s).
How do managed funds work?
A property fund is an entity, such as a unit trust or a company, that raises capital from investors to purchase assets which are directly held by the entity.
In the case of unlisted property funds like ours at Westbridge Funds Management, investors purchase units in a unit trust and, in exchange, receive returns in the form of rental income and potential capital appreciation based on the performance of the underlying properties.
These returns are proportional to the amount of capital each investor contributes to the fund.
Benefits of managed funds
Managed property funds can offer a number of benefits for investors looking to advance their property investment portfolio. Some of the potential advantages of managed funds include:
- Access to high-quality assets: Managed funds can offer exposure to high-grade and large-scale investment opportunities that are often beyond the financial reach of individual investors. These might include larger-scale residential developments and/or commercial properties, the latter of which can hold appeal due to their income-producing potential.
- Lower entry costs: Managed property funds typically have lower minimum investment requirements compared to directly purchasing property, making them accessible to investors who may not have the capital to invest directly in larger-scale assets, or who may not wish to concentrate such a large amount of capital and risk into a single investment. The entry costs can vary significantly, but most managed funds in Australia (including our investments at Westbridge Funds Management) require a minimum investment of around $50,000 – $100,000.
- Diversification: Due to the lower entry costs of managed funds, investors can spread their capital across multiple funds and assets, thereby spreading their risk through diversification. Furthermore, in some cases, an individual property fund may own numerous assets spanning various sectors and geographic areas, offering additional diversification within a single investment.
- Professional management: With property funds, the fund manager handles everything from property acquisition through to the ongoing management of the fund. The expertise and experience of a good fund manager can be invaluable when it comes to risk mitigation and optimising the returns of a fund’s asset(s).
- Passive returns: The professionally-managed nature of property funds means investors can enjoy steady income streams and potential capital appreciation, without the need to dedicate time and effort to property acquisition, maintenance, and administration. This passive approach offers convenience, allowing investors to focus on other aspects of their lives while still reaping the benefits of real estate investment. For funds operated by Westbridge, this income is usually paid monthly.
- Non-Recourse Lending: When investing in property funds, all loans are undertaken by the fund rather than the individual investor. This means unit holders are not obligated to provide personal guarantees, such as using their home or other assets as security, and are not liable beyond the value of their own units.
Who are managed funds best suited to?
When deciding whether to invest in a managed fund, there are a number of factors investors might consider, including their objectives, the stage of their investment journey, and the eligibility criteria of the specific fund in question.
Most Australians typically start out by investing directly in residential property, leveraging equity growth to expand their asset base.
However, as investors advance their residential portfolios, managed property funds can introduce valuable diversification opportunities. They can also enable investors to incorporate higher-risk – yet potentially more lucrative – options into their portfolio, such as residential developments or value-add strategies.
As retirement approaches, investors often prioritise passive income. Commercial property funds can hold key appeal at this stage due to their ability to offer high yields and regular income distributions.
It’s important to note that eligibility criteria can vary across different funds. Some funds, particularly those concentrating on higher-risk assets such as property developments, may only be accessible to wholesale investors (i.e. more experienced investors) who meet specific income or asset thresholds. Others are open to retail investors – essentially anyone who wishes to invest.
Types of managed funds at Westbridge
At Westbridge Funds Management, we offer two key types of unlisted managed funds: commercial property funds and residential property funds.
Within this, our funds range in terms of number of assets, objectives, strategies and risk profiles. In this way, we’re able to offer our investors different opportunities suited to their different wealth creation objectives or stages in their investment journey.
Commercial property funds:
Our commercial property funds are designed to provide investors with regular income distributions as well as potential for capital growth. Our funds at Westbridge encompass a variety of options, including single-asset and diversified funds, each with their own risk and return profile.
For instance, our diversified funds typically focus on generating regular passive income through a diversified asset base that offers exposure to blue-chip tenants, often including ASX-listed or national companies.
Our growth-focused investments, on the other hand, typically incorporate a value-add approach, which entails higher risk but also offers the potential for greater capital returns.
Residential development funds:
Our residential development funds pool capital from investors to finance the development of larger-scale development projects, such as apartment buildings and townhouse complexes.
These funds target capital growth and are focused on generating capital returns within a relatively short period of time.
This type of investment typically appeals to investors wanting to capitalise on market opportunities and achieve rapid financial growth, but who are also more comfortable with higher levels of risk.
How to invest in managed funds in Australia
The process of investing in a managed real estate fund in Australia can vary between fund managers, but the general principles for unlisted property funds remain similar. As a guide, here is how the process works at Westbridge Funds Management:
- We inform you of a new investment opportunity. This could either be a new fund, or an opportunity to invest in an existing fund which is acquiring a new asset.
- You submit a “soft” expression of interest – either via our registration of interest form or by communicating directly with our team.
- We send you the Product Disclosure Statement (PDS), or Information Memorandum (IM), so you can review the key details of the fund, including assumed risks and target returns.
- You have the opportunity to ask our Key Relationship Managers any questions you have about the fund or information provided.
- You lodge an application form to apply for units in the fund.
- Once your application is accepted, we issue you with a Unit Certificate confirming your investment.
If you’re considering investing in an Australian managed fund and would like to know about our upcoming commercial and residential property investment opportunities at Westbridge Funds Management, sign up here to be notified of our upcoming funds.
Recommended
What is IRR and why does it matter?
Are you a retail or wholesale investor?
How to invest in commercial property in Australia
What’s the difference between listed and unlisted property funds?
Tax-deferred income – a hidden perk of unlisted property funds
This information has been prepared by Westbridge Funds Management as a general guide only. It does not constitute an offer for sale, or solicitation for the purchase of securities, financial products or other investments. It should not be relied upon to determine or to make decisions about the investment objectives, financial situation or individual needs of any person. Westbridge Funds Management recommends investors seek professional advice before making a decision to invest
Westbridge Funds Pty Ltd ABN 33 652 852 214 AFSL 533936. Westbridge Asset Management Pty Ltd ABN 48 151 957 676. Westbridge Property Securities Ltd ABN 28 091 623 862. AFSL 238386. Momentum Wealth Projects Pty Ltd ABN 29 090 792 439 t/a Westbridge Urban.