What are the risks?

More than other asset classes, property requires active management to maintain its value, and offers the opportunity to increase its value through good management. This management is of two sorts:

• Property management - the day-to-day management of repairs and maintenance, minor improvements, and relationships with tenants, including the collection of rent and service charges
• Asset management - the strategic decision making as to when and what to buy and sell, and how to make a significant improvement to the property's value.

Both types of management need to be carried out and should not be confused. The difference between good and bad property management is generally easily visible, and investors in commercial property should expect agents or property companies to manage their portfolios to a high standard.

Standards in the residential market are much more variable, because of the large number of small landlords, and because tenants do not generally have the same power to demand high standards as tenants in commercial markets. This situation is changing with the development of codes of conduct, and there are a number of very large-scale property management companies that are raising standards.

In both residential and commercial markets, the time and effort required for day-to-day management should not be underestimated. As poor management can quickly destroy a property's value.

However, in a good market where values are generally rising, it is often difficult to distinguish good asset management (either your own, a professional property manager's, or a property fund manager's) from bad, since all will tend to produce positive returns. In poor or falling markets, the difference between good and bad management becomes more obvious.

The growth of 'fund of funds' and global property securities funds is seen as one way of addressing this issue, by specifically placing the responsibility for assessing management performance with a professional manager. While this can deliver an additional level of diversification, however, a second layer of management also adds costs.

Wherever asset management responsibility is placed, whether with a specific asset manager, a fund manager, or a manager of a fund of funds, it is important for investors - and particularly their advisers - to be aware of how to check performance against available benchmarks, particularly indices.

Here, as with any other investment, regular and transparent reporting is vital in enabling performance checks to be made. There has been a drive to raise standards from organisations such as the European Public Real Estate Association (EPRA), and the pressure of professional institutional investors is important for maintaining future improvements. There is an increasing amount of information, which was traditionally restricted to professional investors, becoming available to investors via organisation such as Reita.

Finally, the objective of the manager of a property is, of course, to generate fees or rewards as a result of their activities.  From an investor's perspective, the additional cost of these fees has to be justified by a better return and a reduced risk.

Further information

Investors wishing to find out more about these standards, and what constitutes good practice, can refer to the BPF www.bpf.org.uk or ARLA the association of residential lettings agents