Commercial property investment funds could hide exorbitant hidden costs warns charities expert Charles Mesquita of Carr Sheppards Crosthwaite.
Commercial property investment funds could hide exorbitant hidden costs warns charities expert Charles Mesquita of Carr Sheppards Crosthwaite.
The warning follows reports that the Financial Services Authority has launched an investigation into the wide range of commercial property investment funds open to individual investors following fears that people could be lured into expensive and risky schemes. Mr Mesquita said that charities could also suffer if they invest in unsuitable commercial property funds.
During the turbulent equity markets, commercial property has delivered healthy returns.
There are now a plethora of funds available for investors, whether institutional, retail or charitable, to gain exposure to the commercial property market.
Mr Mesquita says: "Charities should be aware that there are a number of factors that could have an adverse effect on their investment. For example, exorbitant charges are often hidden to investors. The practice of ‘gearing' could also be a worry for many charities because it increases risk. This means that funds borrow money to boost the amount that they can invest. While this can enhance gains in a rising market, it can magnify losses if returns fall.
"In addition, charities should be careful of funds based offshore, as they give investors no protection under English law," he warns.
To counter this says Mr Mesquita: "Charity trustees must not be afraid to seek good advice and rigorously assess any potential investments before committing their funds. It is crucial to understand exactly where your charitable money is going."
"The first port of call for charities interested in the commercial property market should be common investment funds. Trustees can rest assured that they are regulated and approved by the Charity Commission, they are transparent and provide regular reports and accounts so investors can easily monitor their progress. Importantly, common investment funds are also tax efficient, so charities can retain their stamp duty exemption."