Download Suitability report

Walls & Futures
London Growth Fund
Suitability report
Before giving advice to your clients, you will have carefully considered their financial needs, their attitude
to risk and their own individual circumstances, as all these factors will influence the recommendations
that you make to them.
This document contains some factual information you may find useful when drafting your suitability
reports. The headings and layout are only examples and should not be taken as a guide for how your
suitability report should look or what it should include.
You are solely responsible for making sure that the content of your report is current, appropriate, tailored
for each client and meets regulatory requirements. We are not providing advice where you use any of
this wording to contact your clients.
No responsibility is accepted by Walls & Futures Limited for your reliance on, or use of, this information
which is supplied at your own risk.
All information in this document relating to taxation is based on our understanding of law and practice in
Ireland and the UK at December 2009. The future tax position of the bond or your client’s own tax
position may alter.
Client report
Walls & Futures London Growth Fund
For
[Client Name]
[Date]
Investment recommendations
Having discussed your investment requirements with you it was agreed that you are:

A cautious to medium risk investor seeking capital growth

Willing to invest capital for a five year period

Seeking to achieve a widely diversified portfolio to reduce investment risk
Given your requirements as summarised above, our recommendation is that you consider the Walls &
Futures London Growth Fund.
It is a low to medium risk fund, and therefore suited to your investment risk profile. Investing in
residential property would act as a diversifier to your existing investments due to its low correlation with
bonds and equities.
The Fund is designed to run for 5 years with profits from the underlying residential properties paid to
investors at the end of the term of the Fund. You should therefore consider this as a commitment to
invest for 5 years.
The fund has a targeted return of 10.49% per annum (annualised) after all fees and expenses and a
minimum investment is £25,000 Sterling.
For this reason we would suggest that you consider investing [£___,___] representing some [__ %] of
your existing investment portfolio.
The construction of the Fund is innovative in that it will invest in a wide number of sites each meeting a
specific risk / return / time frame criteria. The risk profile is therefore low, complemented by the fact that
the Fund will have a target gearing ratio of 50% and maximum of 75%.
It is structured as a Scottish Limited Partnership and is classified as an unregulated collective
investment scheme.
Investment Rationale
Historically the UK property market has been seen as an asset class offering strong capital growth and
income potential due to the imbalance between supply and demand. London has been a focus for global
investors given its position as one of the most desirable places to live and work.
The UK property market’s rapid decline has been well documented. Over the last 18 months the global
financial crisis caused sales volumes to fall by 61% nationally and by 65% in London(1). As sales
ground to a halt prices fell by up to 40%(2) depending on location.
As the market stabilises the Asset manager believes there is an opportunity for investors to acquire
quality property assets at a discount to peak values. Construction starts and property completions are
now at their lowest levels in over half a century(3) further exacerbating the demand/supply imbalance.
Coupled with a thawing in the credit markets, London property prices could rise sharply over the next 5
years
The Asset Manager has identified South West London as the preferred area to invest with specific focus
on the following London Boroughs:




Royal Borough of Kensington & Chelsea: Chelsea (SW10)
Hammersmith & Fulham: Fulham (SW6), West Kensington (W14)
Wandsworth: Battersea (SW11), Putney (SW15), Wandsworth (SW18)
Merton: Earlsfield (SW18/19), Southfields (SW18/19)
These areas have been selected as they offer a blend of Prime and Entry Level Prime London property.
The demographic profiles of these locations are similar to that of Prime Central London, however
average price points are up to 40% lower. The target areas have a track record of demand from owner
occupiers and higher than average private rental accommodation.
By focusing on the middle market, the Fund aims to minimise downside risk while benefiting from
investment in established areas together with the medium term price growth due to gentrification.
(1) Land Registry
(2) Knight Frank: London Residential Review 2009
(3) Knight Frank: London Residential Review 2009
Summary of the Walls & Futures London Growth Fund
Strategy
The Fund intends to target quality properties located in Prime London or Entry Level Prime London that
will benefit from medium term gentrification. The target market for tenants and final asset disposals will
be young professionals.
The funds raised will be deployed over a two year period to capitalise on opportunities as they unfold.
In summary, the Fund will seek to:



Acquire property at a discount to underlying property values;
Add value through refurbishment and redevelopment;
Co-invest with developers to develop property
The Asset Manager has identified South West London as the preferred area to invest with specific focus
on the following London Boroughs:




Royal Borough of Kensington & Chelsea: Chelsea (SW10)
Hammersmith & Fulham: Fulham (SW6), West Kensington (W14)
Wandsworth: Battersea (SW11), Putney (SW15), Wandsworth (SW18)
Merton: Earlsfield (SW18/19), Southfields (SW18/19)
Investment Criteria
Investments in properties may be made by the Fund either directly (acquiring physical property) or
indirectly for example via special purpose vehicles, investments in development schemes or
investments in other structures. In addition;


A minimum of 75% of the Total Commitments invested will be deployed in London
Up to 25% of the Total Commitments may be deployed to acquire good quality residential property
that falls outside London and where the Asset Manager believes there is an opportunity to generate
similar or greater returns than may be available in London
The objective of the Fund is to generate attractive returns whilst aiming to protect Investor’s capital. This
will be achieved by:





Deal origination. Many properties are not marketed widely and as such are not available to the
wider market. The strong network of the Asset Manager means the Fund will have the opportunity
to make investments which may not be available to the general market.
Opportunism. The Fund will seek to acquire property at a discount to the values achieved at the
peak of the market in mid 2007. The Asset Manager anticipates that some of these discounts will be
significant.
Market Knowledge. There is a difference between the price that a vendor is looking to achieve and
the value of a property. The Fund will aim to acquire property at a genuine discount to previous
value rather than a notional discount to the price.
Adding Value. The Fund will particularly look for opportunities where value can be added beyond
simply those of market timing. This will be accomplished through an active asset management.
Downside risk management. The investment approach will be risk averse. The focus of the Fund
will be in areas of consistent demand and limited supply. In areas which may be less established,
the Fund will look for proportionately larger discounts to compensate for additional risk.
Reporting
In order to provide transparency for your investment a full management report will be issued annually.
This will include audited accounts together with a portfolio valuation carried out by independent valuers
Colleys. The valuations will be prepared by a Chartered Surveyor on an open market value basis in
accordance with the prevailing guidelines issued by the Royal Institute of Chartered Surveyors.
Risk warning
An investment in the Limited Partnership involves a degree of risk and investment results may vary over
time. The Information Memorandum provides you with details of risks and potential disadvantages
associated with the investment being recommended. We have previously discussed these, and I would
like to highlight the following points:


As with property values in general, the value of the Properties can go down as well as up and
Investors may not get back the amount invested.
Past performance is no guarantee of future returns.
Fund Structure
The Fund is structured as a closed ended Scottish Limited Partnership registered under the Limited
Partnerships Act 1907. The particular advantages of using a Scottish Limited Partnership (SLP) are a
combination of the following:
Separate legal personality: this is a unique trait of an SLP which is not enjoyed by limited partnerships
registered elsewhere in the UK. It means that the SLP itself can own assets, enter into contracts, sue or
be sued, own property, borrow money and grant certain types of security.
Tax transparency: this means that the SLP is taxed as though it did not have a separate legal
personality. No tax is payable by the SLP itself. Instead, the UK tax authorities (and many other foreign
tax authorities) look through the partnership structure and partners are taxed on their share of
partnership income and gains arrived at in accordance with their profit-sharing ratios (which can be
different from the ratios in which capital has been contributed).
As such direct investors are taxed on rental income under Schedule A (unearned income) but can offset
certain expenses such as loan interest, property management costs, property insurance, repairs and
maintenance. Gains will be subject to Capital Gains Tax on disposal.
Based on the assumptions given in the information memorandum, it is estimated that a £25,000
investment would incur the following income tax and capital gains tax liability:
Year 1
Year 2
Year 3
Year 4
Year 5
Income Tax Liability at 20%
£92
£99
£107
£114
£122
Capital Gains at 28%
£0
£0
£0
£0
£3,484
Investments made through a SIPP/SSAS will not attract income or capital gains tax.
The hybrid status of separate legal personality coupled with tax transparency offers the best of both
worlds in a way that limited partnerships incorporated in other jurisdictions generally cannot.
Every investor will have the added security of collective legal ownership of the assets acquired for the
Fund in a Limited Partnership structure, but will not have any responsibilities for the operation and
management of the Limited Partnership, which rests with the Operator and General Partner.
Fees & Commissions
As a result of your investment into this fund [Intermediaries Name] will receive a fee of [up to 5%] of your
investment is payable as an introductory commission.
2.5% of the total investment in the Fund will be applied on payment of the establishment costs of the
Limited Partnership and will be paid to the Asset Manager.
In addition, the Asset Manager will receive an asset management fee of 1.5% per annum of the total
Participations of the Limited Partnership.
About Walls & Futures Limited
Walls & Futures Limited is an independent property investment company with expertise in the UK and
London residential property market. With over 15 years property experience the team have sourced and
managed over £350 million (GBP) worth of UK real estate for clients. They are in an excellent position to
analyse, acquire and manage the best investment opportunities in the market.
Dunadd Asset Management Limited
Dunadd Asset Management Limited is the operator of the Partnership and is responsible for ensuring
that the Fund complies with United Kingdom legislation as it affects collective investment schemes and
the rules of the Financial Services Authority. The Operator is also responsible for ensuring that the Fund
fulfils its obligations to investors by acting in accordance with the Partnership Agreement and related
documentation.