The fast-approaching pension reforms which will allow people to draw cash from their pension fund and spend it how they see fit are causing some concerns. Many fear people will take advantage of these new regulations and tax incentives to draw down billions of pounds from poor-performing pensions and then spend that cash unwisely.

Deciding how best to invest your pension money can be a minefield, but many will be looking to put that money into property.

Property is performing well and we have seen unprecedented amounts of cash invested in commercial property over the past 12 months because of huge double-digit annual returns. The residential property market is seeing decent growth and that will also be attractive to savers who are being held back by meagre interest rates with no prospect of increase.

However, individual property investment does have one major drawback. It can be very difficult to unlock that cash when you need it the most and, if you don’t have the experience and insights needed for property investment, it can be a lottery.

Alternatively, syndicated property investment can be a sound bet for people looking to invest their pension elsewhere. Not only does it give you access to a wider pool of properties, but the choice of which property to invest in is entirely yours rather than handing control of your investment to a discretionary property manager. Each purchase is thorough researched with all the necessary due diligence being made available for investors to review and form their own opinion. Here I’ve listed five reasons why you should consider investing your pension in a syndicated property fund.

1. Spreading the risk of your pension investment

By joining a syndicate you can invest your money in multiple properties, which helps to spread any potential risk of tenant default which is one of the main risks with any commercial property investment. The minimum investment is £25,000 and that means you can choose to invest your pension cash in a wide variety of different properties. There is no maximum, but typically people invest around £150,000.

As an added bonus, each property is independently managed, valued and the legal title to the property should also be held in the name of an independent Professional Custodian Trustee, ensuring that the property is protected even if the investment manager ceases to exist.

2. You can sell or transfer your share in the property at any time

With individual property investment, your pension money will be tied up in the property until you can sell it. At best, that means a two month wait for your money should you need it. In reality, you will probably have to wait at least a year to sell the property and get your pension fund cash back.

With syndicated property, an investor can sell at any point and the syndicate as a whole can also decide to sell the property with a 75 per cent majority vote.

Typically, in our case, a holding is sold to another syndicate member or another member of Rougemont’s qualifying High Net Worth client base.

Ideally, syndicated property is a five-year investment, but should you wish to sell, a typical syndicate sale takes just three weeks and Rougemont as the operator of each syndicated property is authorised to assist with this role.

3. Average annual returns of 6-7 per cent on your pension money

With interest rates having been anchored at 0.5 per cent for years and the threat of a further cut now on the cards, savers have been heavily punished during the recession. As a result, most are now looking to take control and find the best returns they can for their pension fund.

Syndicated property investment delivers average returns of around 6-7 per cent and Rougemont Estates is delivering better returns than that.

Each investor receives a quarterly income from the property and also benefits from any potential growth in value of the building.

Total returns on commercial property last year hit 19 per cent and, while it’s unlikely to be as high again this year, investors will still be able to expect double-digit returns when factoring in both income and capital growth, providing they invest in the right property.

4. Syndicated property returns are tax free and offer long-term growth for pension savers

Around half of all investors in syndicated property are using cash from their pension funds as any income or capital gain from the property into their pension is tax free, which is obviously a real benefit.

A typical investor is 45-years-old and is seeking a secure, long-term income that offers the prospect of medium to long-term capital growth. Depending on their age and profile, we find most investors simply don’t want the hassle of playing the equity market every day or having ownership of a single property where all their ‘eggs are in one basket’ and they have to actively manage the property.

5. Pension investors get expert insight and guidance

Perhaps the biggest benefit of investing your pension money in a syndicated property investment is the knowledge that you are getting expert advice and quality investment prospects.

Rougemont Estates minimises risk in this sort of investment by drawing on their years of knowledge and buys properties in prime locations that offer strong prospects for growth through lease renegotiation or property conversion. Rougemont offer the opportunity to it’s High Net Worth audience by way of a detailed investment prospectus. The decision of whether to invest is then up to each investor. Rougemont does not have discretion on any investors funds.

We aim to buy bullet-proof assets. There is still a significant lack of quality stock out there and investors have to be careful.

However, we are confident. We look to operate in a niche area, picking up properties that are too expensive for individual investors but that are too small for the big institutional funds.

By turning to a syndicated property investment company, you can invest in properties in prime locations that benefit from long leases or offer strong prospects for lease renegotiation, rental growth or conversion to an alternative use.

For pension savers, we feel there are some real areas of opportunity within the prime and secondary market where they will be able to benefit from acquiring quality assets that present a real opportunity for growing their cash for the future.

We can predict a lot about 2015 with certainty. There will be another Royal baby, the UK political merry-go-round will hit full spin in the run-up to the General Election and Top Gear’s Jeremy Clarkson will court further controversy.

However, developments like pension reform, continuing uncertainty and deflation in the eurozone, the potential for interest rate rises and the weight of cash pouring out of the institutional funds can make investment predictions a daunting prospect for some.

In reality, 2015 will follow a similar path to 2014 for those considering commercial property investment. It will be a year of growing occupier demand that will help to fuel rental growth and increasing investor appetite. The one difference will be that the dwindling lack of supply will increase competition for quality assets and that means many investors will have to increase their appetite for risk to secure the returns they seek.

In this Investment Insight, I aim to give an overview of what we can expect from the year ahead and share some of the views from experts across the sector. In the weeks to come, we’ll also be discussing these issues in more details through further blogs.

Will the General Election affect the commercial property investment market?

As James said in the last update, I also don’t think the General Election will have a major impact on investments this year. With so little differentiating our major political parties, British politics are perceived as stable and that means most investors are rarely troubled by changes at the top.

Unlike more liquid assets, property is not as quickly affected by political swings and that means it can be a safe haven while Prime Minister David Cameron aims to hold off the advances of Labour’s Ed Miliband UKIP’s Nigel Farage and secure a second term.

The potential issues are the risk that some occupiers may hold off on decisions until after the election and overseas investors may be put off by the prospect of an EU referendum if the Tories hang on to power.

This is a view shared by Caroline Simmons, the head of investment at UBS, who says the election will be a risk, but appetite remains strong.

Even if we see a massive shift in Government and political policy, the impact on the property investment market could take years to crystallise.

How will the faltering eurozone affect the UK economy?

We are already seeing signs of deflation in the eurozone – the European Central Bank revealed that December saw a minus 0.2 per cent dip – and this could have a significant impact on the UK.

The knock on effect of this can cripple economies as it makes debts harder to service, causes falling prices and it can also lead to business and households putting off investment and spending, which hits corporate profits and costs jobs.

Several people are predicting that inflation could remain negative in the Eurozone until later in the year and that causes people to hold off on spending, thinking things will get cheaper as a result. In reality, it will most likely lead to Quantative Easing in Europe and that could have a devastating impact on inflation targets in the UK.

Inevitably, that would force the Bank of England to take further action to prevent our strong growth from stalling. From an investor point of view, this could have a slowing effect on property and yields and it’s something everybody should be aware of.

Where will investors be spending their money?

The London investment market is cooling off as all of the quality assets have now been snapped up and that means most investors are now looking to the regions.

The biggest issue is a lack of prime stock. Speculative development has now returned, albeit largely in the distribution and city centre office sectors where there is limited supply for occupiers, and, in any event, investors will have to wait another 18 months for these new opportunities to materialise.

The institutional funds are also under great pressure to spend the mountains of cash at their disposal and that means they – along with overseas investors and other major funds – are having to increase their risk profile, consider secondary stock and look at new locations.

This move down the food chain means there is increasing competition for quality assets and investors will have to work harder to find the right investment. Rougemont Estates specialises in finding these “pockets of value” and we are currently finalising a deal to invest in a long-leased prime retail investment asset that has a captive market and a queue of retailers requiring a presence on the same high street.

Historically, we wouldn’t typically consider retail investments however, having seen the beginnings of the return of the ”High Street” after seven years of devastation, rationalisation and change, it is encouraging to see this discounted investment sector rejuvenating itself.

However, out of town retail remains a concern due to the “online shopping” factor. Likewise secondary retail continues to suffer as the “High Street” has fundamentally changed and contracted leaving essentially prime only.

In general, there is still a significant lack of quality stock and whilst care must be taken, we are still confident about the year ahead. We continue to see opportunities and are working alongside occupiers to maximise their occupational requirements whilst also engineering quality investment opportunities both for syndication and individuals.

Where will money from the pension reform be spent?

Key considerations for the year ahead include the anticipated interest rate rise later in the year, the potential of a new mansion tax and the increased stamp duty. All of these could impact on certain sectors of the property world and that will inevitably have some impact on investment opportunities.

However, perhaps the biggest impact will be from the new pension reforms that allow people to take their cash and invest it where they want. Many will look to invest in property and this new weight of cash, while increasing competition, will also add to the strength of commercial property investment syndicates.

While many may opt for the “bank of mum and dad” option and help their children onto the property ladder, many will be looking to improve the returns on their cash by investing in a range of syndicated commercial property investments.

What is the outlook for 2015?

In 2014, we bounced back. Occupier demand grew, rents began to increase and investment across the UK topped £50bn.

It will be the same story in 2015. The weight of money will continue to drive the sector ahead and, although the total amount of investment will probably be down due to the lack of supply, it will be another solid year with some great opportunities for securing decent returns.

Investor appetite will remain strong as, even with an interest rate hike, returns from property will continue to far outstrip bond yields for the foreseeable future.

As always, this information does not constitute investment advice and the views expressed are purely those of the Directors of Rougemont Estates. These regular updates aim to help you develop your own strategy for investment by sharing clear independent research on what you can expect from the commercial property market in the months ahead.

If you have any thoughts on what lies ahead, I’d love to hear them in the comments below.

Unregulated Collective Investment Schemes (“UCIS”) have been dominating the financial headlines over the past two years whilst the Financial Conduct Authority (FCA) has grappled with the lengthy process of ensuring that retail investors do not fall foul of inappropriate advice regarding such schemes.

The result of the FCA’s review is a complete ban on the promotion of UCIS and “close substitute pooled schemes” to the vast majority of retail investors in the U.K. and the introduction of a new regulatory framework governing the operation and promotion of such products.

Under the new regulatory framework, investments such as these can only be promoted to sophisticated or high-net worth investors, or to authorised professional advisers..

Non-Mainstream Pooled Investments

UCIS and close substitute pooled schemes – which are collectively known as Non-Mainstream Pooled Investments (“NMPI’s”) – cover everything from syndicated commercial property and unit trusts set up for tax-exempt investors, to investments in fine wine and forestry / timber; all which are viewed as alternative investments. These types of investment have traditionally been perceived as riskier due to the complex nature of some of their fund structures and the fact that many of the schemes have been highly geared and illiquid in nature; however, that is not the case for every type of UCIS.

The FCA’s review of these types of product has been brought about by a large number of retail investors having lost significant sums of money because they did not fully understand the nature and operation of the schemes in which they were encouraged to invest. In many cases investors had not benefitted from appropriate advice on the suitability of such investments, particularly having regard to their personal circumstances and investment expertise.

However, the FCA has also recognised that some of these schemes do have significant benefits for certain investors, hence the arrangement whereby investors can declare themselves sophisticated investors or high-net worth individuals, thereby enabling them to continue taking advantage of alternative investments.

Alternative Investments

When it launched 5 years ago, Rougemont Estates recognised the importance of being an FCA regulated company and it dedicated significant time and resource to becoming appropriately regulated.
Whilst the new statutory regulations may seem like a major headache to many, they are welcomed by Rougemont as they deliver a long awaited legal obligation on all promoters of such products to provide a uniform high level of transparency in their dealings with investors.

Therefore, there is now a regulatory as well as moral obligation on business operating in this sector to ensure that investors know just exactly what it is they are investing in, what the benefits and risks are of the investment, what return they will receive and when, and what fees the promoter of the product is making from the investment.

Despite these new changes syndicated commercial property investments are still viewed as a riskier alternative asset investment and whilst Rougemont is regulated by the FCA, their actual investment promotions are not; this means that investors may not be protected by either the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS).

However, with an investment in tenanted commercial property investors always retain the value of the land and buildings. Clearly, the main risk is that the tenant becomes insolvent and defaults on its lease obligations; therefore, careful assessment of the tenant’s covenant strength combined with detailed due diligence into the terms of the lease and a rigorous appraisal of the quality of the building itself, its geographical location and its potential for alternative uses are all considered prior to an opportunity being promoted.

Syndicated Commercial Property and liquidity

A major benefit of investing in syndicated commercial property is the freedom for investors to participate in a wide range of well researched, high quality, tenanted properties. Investors can choose to have their commercial property exposure in just one, or a range of diverse property classes and tenants, whilst at all times retaining ownership of their specific pro – rata share of the actual property itself. Syndicated commercial property provides an investor, wanting to invest in commercial property as part of a balanced investment portfolio, the opportunity to do so at levels of financial investment that would not normally deliver exposure to such high quality properties and tenants.

One clear downside with such investments is liquidity and in the case of Rougemont, other than within its client base, there is no established secondary market for the investment. Accordingly, investors have to be prepared to consider such investments as illiquid and be held as a medium to long term investment. However, it is worth noting that when clients have sought to liquidate their investment Rougemont has, to date, never failed to secure a sale of the holding on a client’s behalf. The process is benchmarked against an annual independent valuation and the transaction typically takes two/three weeks.

An alternative to syndicated commercial property is an investment in an established regulated real estate fund, where there is no direct ownership of the asset and all investment and management decisions are made by the fund managers. These investments are viewed as having a much higher degree of liquidity, with investors normally being able to disinvest at will; however, this is not always proven to be the case. In the early stages of the recession, Aviva prohibited investors from exiting their fund while they battled to meet the scale of investor redemptions and seeking to avoid being faced with having to sell off commercial property below their market value to repay investors.

Co-investors

A further benefit of the UCIS promotion rules is the knowledge that your fellow investors will be like-minded individuals. By only promoting to sophisticated or high-net worth investors, you can be reasonably confident that your co-investors will have the necessary experience to participate in making informed commercial decisions regarding the future management of the asset.

Syndicated commercial property investments, promoted and operated by FCA regulated companies, allow investors the freedom to invest in and own their dedicated percentage of a well tenanted quality commercial property, delivering regular quarterly returns with the potential for capital growth.

The FCA recognises this and by now formally establishing a new regulatory framework, advisors and investors can take comfort in the knowledge that every aspect of the business and its promotions are both transparent and ethical.

Unregulated investments are riskier but the rewards can be greater and, most importantly, investors retain control.

London is recognised as the world’s top city for commercial property investment, but we have seen a dramatic swing away from the capital in recent months. High-net worth individuals, major funds and property syndicates seeking alternative investments are now looking to commercial property in the UK regions for solid returns and a high-level of security.

The latest research from commercial property agency Knight Frank shows investment activity in the regional cities soared to a seven-year high in the latter half of 2013 as a wave of institutional money turned its back on London.

This is fuelled by savvy investors who are now looking to get more for their money and more realistic returns.

Investment growth

These UK investors, alongside a swathe of foreign direct investment (FDI), propelled investment turnover to £1.63bn in quarter four of last year – the strongest quarterly total since quarter three of 2007.

But why are investors looking beyond London? Put simply, prices in London have soared because overseas investors have invested heavily in the city as they look for a safe haven away from the recent economic turmoil.

CoStar’s UK Annual Investment Bulletin shows commercial property investment deals reached £52.7bn in 2013, with two-thirds of that money invested in central or Greater London.

That presents significant opportunities for UK investors who know how to make the most of the regions. With investors now looking elsewhere, the weight of money targeting the regional markets has given rise to significant price increases.

Hardening Yields

Knight Frank’s research shows yields from prime stock have hardened by c.50 to 75 base points in the past year. With the rate of yield compression easing, performance will be driven by the recovery in the occupier markets.

Take-up across the regions is growing dramatically once again and that means quality space is running out. For investors, this diminishing space means we should see improved rental growth in the coming months.

It’s a good opportunity and that is why investors are looking to the regions. They are capitalising on falling yields, rising rents and soaring occupier demand.

Direct Foreign Investment

In 2013, the combined effect of a low-interest rate environment, increasing stability in the eurozone, the continuing recovery of the UK economy and the swathes of foreign investment cash meant that demand soared for commercial property investment.

That trend will continue throughout this year. The rising demand among occupiers and the diminishing availability of quality space will ensure that investors both at home and abroad will continue to seek UK opportunities.

Rental Growth

London will remain popular – it’s rumoured that £25bn of funds is currently chasing £1bn of available property in the capital – and that will mean prices will continue to rise for investors and occupiers alike.

But that means the momentum will be in the regions. With occupiers chasing quality space outside London and the trend for “northshoring” growing, this will trigger further rental growth, a rise in occupier demand, speculative development and the number of investment deals will continue to grow in the major regional cities.

This presents significant opportunities and the investors who seek out regional stock with the potential for active asset management will see solid, long-term returns.