The downturn in property fund man agers seeking research reports has led to researcher PIR retrenching four analysts.
PIR managing director Richard Cruick shank said the reduced demand for research from property managers has led to it downsizing its operations.
“We are restructuring the company and plan to expand our service offering in the future,” he said.
“Our services are still running, but we have not been asked to rate any new products and managers have not asked to have their reports updated, so we have had to let some staff go.”
Lonsec Securities senior analyst Kevin Prosser agreed there were few requests for new product ratings at present, but there was still some ongoing business.
“Certainly some people are delaying get ting new reports,” he said. “But there is enough work to keep us busy and people are asking to have reports updated.”
Adviser Edge head of property research Louis Christopher said a slowdown in requests for new reports was evident in the second half of 2008.
“We are finding managers have become more discerning about which products are being rated,” he said.
“Some fund managers are targeting which property fund will be rated well and therefore will obtain distribution among advisers.”
Cruickshank said PIR’s decline in its rat ings business during the past couple of years was due to several reasons.
“The first was when we believed in 2005 that commercial property was overvalued; that concern was reflected in lower PIR ratings for most unlisted funds coming to market,” he said.
“The second major concern was in relation to the ever-increasing practice of managers applying the risky prac tice of returning capital as part of enhancing/ boosting distributions. This practice was also rightly reflected in less positive PIR ratings.”
Cruickshank said the lower ratings proved to be unpop ular with managers, so they sought alternative reports “from less experienced and, in other cases, opportunis tic research sources”.
“It is quite apparent that PIR warnings in relation to these issues during recent years have fallen on deaf ears,” he said.
Many property funds have been subject to significant changes in the past 12 months and Cruickshank said the failure for managers to have their reports updated was misleading investors. Reports should be updated to reflect the change in asset values, departures by investment team specialists, the skill sets managers need to handle the cur rent crisis, return on assets and the levels of debt held by the fund, he said.
“PIR believes there is currently sufficient uncertainty in the property markets [to] oblige financial advisers to insist on obtaining current reports on all unlisted property and mortgage funds held in their clients’ portfolios,” Cruick shank said.
Christopher believed it was short-sighted for fund man agers to fail to update reports and be selective on what products were rated.
“The trouble is financial planners still don’t know what they want to do with clients’ portfolios in 2009,” he said. “If the product is not on the dealer group’s approved list, the manager won’t be considered by the adviser.
“The number of reports and updated reports has slowed, but it hasn’t dried up completely,” Christopher said.
