The debate continues to rage as to whether or not listed property funds should make use of external asset managers for day-to-day operations, acquisitions and disposals. Detractors say that unitholders would save on costs and prevent conflicts of interest by scrapping external management.

But the industry consensus looks set to swing in favour of arm’s-length external asset management that brings with it both scarce skills and exemplary governance. Madison Property Fund Managers, one of the largest operations of its kind in SA, has hit on a model that makes a lot of sense for listed property funds.

In the asset management business, says Madison director Marc Wainer, there’s a place for both effective day-to-day portfolio management, and shrewd deal-making. Acknowledged as one of the industry’s leading dealmakers, Wainer knows what he’s talking about.

“In an extremely competitive environment, it is difficult to make earnings-enhancing acquisitions. These kinds of deals certainly don’t just walk through the door,” says Wainer. Good asset management is also about the day-to-day decisions that direct the performance of the portfolio. Madison’s business model has been designed to support both functions.

The structure includes Madison itself, and three distinct listed funds: ApexHi Properties Limited, Hyprop Investment Limited, and Redefine Income Fund Limited. Each fund has its own audit and investment committees and its own seconded staff. Independent, non-executive directors serve on the Board. The result is that the directors of Madison have a fiduciary duty to the unit holders of the individual funds, explains Madison director Wolf Cesman.

“No single director can force a decision and Madison can’t benefit at the expense of the fund,” says Cesman. A case in point is the recent withdrawal of Hyprop’s bid for the V & A Waterfront in Cape Town. “Madison could have benefited from the fee, but it wasn’t in the interests of the Hyprop unitholders to pursue the deal, Madison motivated that Hyprop withdraw from the bidding thereby saving costs of the bidding process,” he adds.

Madison’s model is working. The company listed on the JSE Securities Exchange in June this year with more than R18 billion under management, this has grown to R22,5 billion. And the other listed funds seem to agree that effective external management is the way to go. Currently, only four listed property funds are managed by entirely internal asset managers.

Issued on behalf of Madison Property Fund Managers
T. 011 283 0000

Marc Wainer 
C. 083 260 7646

and

Wolf Cesman
C. 083 675 2227

By Marketing concepts
Sandy Davey / Bronwen Noble
T: 011 783 0700
C. 083 453 6668 / 082 855 4349