Within the domain of the Residential Fund, we distinguish the following risk clusters:
Market risks relate to the Fund’s exposure to adverse market developments. Such developments can affect both the Fund’s direct and indirect return. The Fund’s quarterly reports use the following Key Risk Indicators (KRIs) to reflect the Fund's current risk situation and future risk outlook:
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 Fund’s expected direct return. Due to the significant impact this can have on the direct return, it can also have a considerable impact on the Fund’s indirect return.
The Fund’s direct return, its ability to pay out dividends to its shareholders, also depends on its expected expenditure. As in the case of the occupancy KRI, the direct return performance can also have a significant impact on the indirect performance. The operational expenditure KRI reflects cost performance compared to planned cost. On top of that, the Fund’s quarterly reports include an asset manager outlook for cost performance.
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 Residential Fund, this risk is distributed over a large population of tenants and therefore quite stable and manageable. The most important mitigating measures are the income requirements for new tenants.
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 revalued 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 focus on the Fund's ability to fulfil its strategic goals. These goals focus primarily on sustainable long-term fund performance. The Fund's quarterly reports uses the following Key Risk Indicators (KRIs) to reflect the Fund’s current risk situation and future risk outlook:
Asset risk mix
Acquisition and disposal
Asset risk mix
Different assets in the Fund’s portfolio provide propositions with different levels of risk. Each property is accordingly scored in a risk return assessment model and appointed a risk category. In order to optimise fund return, while taking into account 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.
Regional and geographic developments can have a significant impact on future market conditions. Bouwinvest conducts continuous research into the dynamics of regional population growth and economic development. The Fund focuses its investment activities based on this research, while trying to spread its investments geographically to avoid volatility that may be due to regional concentration. The regional mix KRI focuses on the Fund’s ability to attain the regional distribution it is aiming for.
To ensure that the Fund is future proof and able to provide long-term stable returns, the Fund is set sustainability goals. This KRI will show whether or not the Fund is currently able to meet its sustainability goals.
Acquisition and disposal
To meet investor demand, the Fund aims for a portfolio of a certain size. The acquisition and disposal KRIs show the Fund’s (expected) ability to meet its portfolio size targets.
This refers to the risk that Bouwinvest’s management of the Residential Fund, including its management and control of the risks it faces, may in some way be inadequate or ineffective. This would affect the Residential Fund’s direct and indirect returns. This risk is subdivided into the following risk elements:
Fund-specific legal or regulatory risk
This aim of this KRI is to enable fund management to notify investors of any large regulatory or legal circumstances that may affect or are already affecting fund performance. To minimise any legal or regulatory irregularities, Bouwinvest has an experienced legal staff.
Fund manager continuity and reputation
Bouwinvest is responsible for the fund management organisation. If Bouwinvest sees any threats to its functioning as a fund manager, for instance in terms of damaged reputation or threatened continuity, this KRI will be used to inform investors. In 2015, Bouwinvest devoted extra attention to the subject of integrity. This resulted in a company-wide training programme and the completion of an elaborate Integrity Risk Analysis. Going forward, Bouwinvest as a manager will continue to aim for the highest possible standards of integrity.
To control operational and integrity risks, there is a management agreement in place that determines the responsibilities of Bouwinvest as the Residential 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.