Within the domain of the Retail Fund, we distinguish the following risk clusters:
Market risks
Strategic risks
Management risks
Market risks
Market risks focus on the Fund's exposure to adverse market developments. Such developments can affect both the Fund's direct and indirect return. In the quarterly fund reporting the following Key Risk Indicators (KRIs) are shown to reflect the Fund's current risk situation and future risk outlook:
Occupancy
Operational expenditure
Remaining lease term
Counterparty risk
Valuation movement
Occupancy
The occupancy KRI reflects the current and expected occupancy situation for the Fund. Occupancy depends on market demand, availability of competitive propositions and fund portfolio positioning in the market. Occupancy is an important driver for the expected direct return of the Fund. Because of its importance for direct return it can also affect the Fund's indirect return considerably.
Operational expenditure
The Fund's direct return, its ability to pay out dividends to its shareholders, is also dependent on its expected expenditure. As mentioned with the occupancy KRI the direct return performance has a considerable effect on the indirect performance as well. The Operational expenditure KRI reflects cost performance compared to planned cost. On top of that the quarterly fund report shows an asset manager outlook for cost performance.
Remaining lease term
In commercial real estate like that of the Retail Fund leases are contracted with a fixed term. The average weighted remaining lease term serves as a KRI to reflect the uncertainty of future direct returns. The outlook for this KRI indicates whether the asset manager expects this uncertainty to increase or decrease.
Counterparty risk
Counterparty risk is the risk that parties the Fund has agreements with will default. This risk is largely determined by the ability of its tenants to fulfil their contractual obligations. For the Retail Fund, this risk is mitigated by active credit management and critical tenant selection.
Valuation movement
The valuation movement KRI indicates the fund return driven by revaluations and it reflects the outlook for this indicator. All properties owned by the Fund are revaluated by external appraisers either on a quarterly (standing properties) or on an annual (non-standing properties) basis. This revaluation is the most important driver for the Fund's indirect return.
Strategic risks
Strategic risks focus on the Fund's ability to fulfill its strategic goals. These goals focus primarily on sustainable long term fund performance. In the quarterly fund reporting the following Key Risk Indicators (KRIs) are shown to reflect the Fund’s current risk situation and future risk outlook:
Asset risk mix
Different assets in the Fund’s portfolio provide propositions differing in riskiness. Each property is scored in a risk return assessment model and appointed a risk category accordingly. In order to optimise fund return while considering the Fund’s risk appetite fund goals are set for each of the three risk categories. The KRI for asset risk mix shows whether or not the Fund is able to match its portfolio to the risk appetite it is aiming for.
Segment fulfillment
Based on analysis and investment beliefs the Retail Fund has specific strategic goals regarding the type of assets it aims to own. More specifically the Fund is focusing its investment activities on high street retail and shopping centres. The Segment fulfillment KRI focuses on the ability of the Fund to attain the segment distribution it is aiming for.
Sustainability
To ensure the Fund will be a future proof fund which is able to provide long-term stable returns goals are set for the sustainability of the Fund. This KRI will show whether or not the Fund is currently able to meet its sustainability goals.
Acquisition and disposition
In order to meet investor demand the Fund aims for a portfolio of a certain size. The acquisition and disposition KRIs show the Fund’s (expected) ability to meet its portfolio size targets.
Management risks
This refers to the risk that Bouwinvest’s management of the Retail Fund, including its management and control of the risks it faces, may in some way be inadequate or ineffective. This would affect the Fund’s direct and indirect returns. This risk is subdivided into the following risk elements:
Fund specific legal or regulatory risk
This KRI is meant for fund management to be able to notify investors of any large regulatory or legal circumstances that may affect or are already affecting fund performance. To prevent as much legal or regulatory irregularities as possible Bouwinvest has an experienced legal staff.
Fund manager continuity and reputation
The fund management organisation is a responsibility of Bouwinvest. If Bouwinvest sees any threats to its functioning as a fund manager, for instance in damaged reputation or threatened continuity, this KRI will be used to inform investors. In 2015 the subject of integrity has attracted extra attention within Bouwinvest. This has resulted in a companywide training program and the completion of an elaborate Integrity Risk Analysis. Going forward Bouwinvest as a manager will continue to aim for having the highest possible integrity standard.
To control operational and integrity risks, there is a management agreement in place that determines the responsibilities of Bouwinvest as the Retail Fund’s management company. Bouwinvest’s ISAE 3402 certification provides investors with reassurance on the risk management, including risk definition and control measures, of all key processes of a company’s day-to-day operations.