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AIMR – The Association for Investment Management and Research was founded in January 1990 by the merger of the Financial Analysts Federation (FAF) and the Institute of Chartered Financial Analysts (ICFA). The AIMR Performance Presentation Standards (AIMR-PPS), which are effective as of January 1, 1993, set expectations and provided an industry yardstick for evaluating fairness and accuracy in investment performance presentation to clients and prospective clients. AIMR applies to all investment managers of all asset classes, including stocks, bonds and real estate. AIMR’s four primary goals are: 1) to achieve greater uniformity and comparability among performance presentations, 2) to improve the service offered to investment management clients, 3) to enhance professionalism of the industry and 4) to bolster the notion of self-regulation.
Appreciation [International Term = Net Asset Backing Growth] – Increase in the value of an asset. As used in regard to performance, it represents the increase in market value from one period to the next, adjusted to reflect any additions to or repayments of capital. As used in relation to equity-oriented mortgages, it represents the amount by which the property’s sale price exceeds the purchase price, also adjusted for specified capital changes.
Assets Under Management (AUM) [International Term = Funds Under Management (FUM)] – This term is used by different people in different ways. For purposes of this report, there are two related terms used, "Gross AUM" and "Net AUM." Gross AUM - See "Gross Assets Under Management" definition. Net AUM – See "Net Assets Under Management" Definition. As AUM are reported shortly after quarter end, results are based on estimates when actuals may not be obtained. ASSIRT – ASSIRT is the Australian Independent Research House of SEALCORP Holdings Limited. ASSIRT was established in 1985 and provides research information to the market on a full range of industry issues. In 1994, ASSIRT introduced ratings, assessing Australian fund managers and products with a focus on their ability to meet investor needs. They conduct consumer surveys, supply windows based software for financial advisors, and conduct regular seminars and workshops. Charitable Trust/Endowment/Foundation – Charitable Trusts and Foundations: Administered by a trustee, money is raised and grants are made to benefit the public’s health and welfare. Grants are also made to strengthen the community in which we live. "Foundation" status and "charitable" status are tax code concepts. Endowment: Charitable or educational institutions that have had contributions donated to them. The organizations, in turn, invest the contribution to provide future income to the organization.
Closed-End Fund – A pooled vehicle that for real estate normally is formed to accept contributions of a predetermined amount over a defined and limited time period, and usually has a finite time limit for investing before being liquidated, unless extended. Commitment – Dollars allocated by clients for investment in Real Estate Funds. There are three different types of commitments:
Core – Investments in large, high quality, substantially leased, traditional type properties, featuring strong income returns and utilizing little to no leverage. Expected 4% - 6% real rate of return.
Corporate Pension Fund – Retirement plans funded by corporations and administered primarily by the trust departments of commercial banks or by life insurance companies. Plans receive contributions from the firm and/or its employees for the purpose of giving workers income after retirement and are generally subject to ERISA. Investments are primarily in bonds, stocks, mortgages, and real estate.
Discretionary – The advisor has the ability to implement its own investment strategy without client imposed restrictions (full discretion) or advisor has authority to operate within pre-established guidelines that are consistent with the company’s recommended strategy (managed or participating discretion).
Distributed Income – The amount of investment income derived from operations that is either actually distributed to investors, or credited to investors in the case of investment fund dividend or income reinvestment programs. It does not include the return of capital or principal, the distribution of realized gains from asset sales, or proceeds from financing activities, but rather essentially represents actual cash distributions derived from customary and ongoing investment management operations. Distributed income is nearly analogous to dividend yield, except that dividend yield may include a partial return of capital and capital gains. Note that distributed income returns, alone, are not suitable for the evaluation of manager performance because distribution levels are often determined by the policy of the individual fund.
Dividend Yield – The annual percentage of return that the dividend provides to the investor on either common or preferred stock (often referred to as just "yield"). The yield is calculated by dividing the annual cash dividend per share by the stock's market price at the time of purchase, and can be used to track performance of mortgage REITs.
Dollar Weighted Returns (IRR’s) – The Internal Rate of Return (IRR) represents the average growth rate of all dollars invested which causes the sum of the present values of all cash flows associated with an investment to be zero. The IRR, therefore, is impacted by the size and timing of cash flows (i.e. contributions and distributions). For example, contributions prior to a strong performance period will increase the IRR relative to the TWR. IRR’s have two primary limitations; 1) multiple solutions may exist for a single set of cash flows typically when there are frequent sign changes and 2) the implicit assumption that all cash flows are reinvested at the internal rate of return. For discretionary investments, the IRR provides valuable information to evaluate the overall performance of the investment manager with regard to size, timing and asset selection.
Enhanced – Investments which take on moderate additional risk from one or more of the following sources: leasing, redevelopment, exposure to non-traditional property types, the use of moderate leverage (under 50%). Includes Core-Plus, income with possible appreciation, and Value-Enhanced, combination of both income and appreciation. Expected 6% - 12% real rate of return.
Gross Assets Under Management – Gross real estate assets at market value including mortgages receivable presented at legal balance; and are presented at ownership percentage, unless advisor serves as general managing partner, then recorded @ 100%.
High Net Worth Individuals-
Individual/Family Office/Family Trust – Clients are private, high net worth individuals or private management offices (family offices) that manage the collective fortunes of wealthy families. Family offices can either service the heirs of one family or offer their services to multiple families.
Insurance Companies/Banks – Entities qualified to conduct insurance business under one or more state laws. Savings in the form of annual premiums paid by policyholders are typically invested in stocks, bonds, real estate, and mortgages. Payments, when needed, are made to the beneficiaries of the insured parties. Insurance company "separate accounts" are legal fictions where the assets and liabilities of a particular policyholder are matched under state law. "General account" assets, on the other hand, represent the investments from which insurance company’s "corporate" assets fund obligations to policyholders and other "corporate" liabilities.
Investment Advisory Services – Investment services including portfolio management, capital transactions, acquisitions, dispositions, financings and asset management.
Leverage (also known as Loan to Value) [International Term = Gearing] – Borrowing in order to finance the purchase or development of a real estate investment. If the return on the investment before leverage is greater than the interest rate paid on the debt, the leverage is "positive." Negative leverage results when the return is less than the interest rate paid. Leverage, therefore, has the effect of "supercharging" the returns in either direction. The venture capital funds and opportunistic funds have in some cases achieved 100% leverage. Properties are financed 100% with the use of a corporate line of credit (backed by investor commitments). The commitments, however, are not called until one year or later, at which time the property is in a sales mode. For the majority of the holding period, the investment is effectively 100% financed. To the extent portfolios invest in joint ventures which are accounted for under the equity method, portfolio leverage is not applicable, even though the underlying investment may be leveraged.
Loans Under Management - Asset management of performing real estate, more extensive servicing on performing loans than generally provided by primary/master servicer and special servicing on non-performing loans and assets. Loans Under Management are also known as Gross Assets Under Management.
Loans Under Servicing - Advisor acts for the benefit of the certificate holders of CMBS and owners of loans in the administration of mortgage loans. Functions include, but are not limited to the collection of payments from borrowers and advancing funds for delinquent loans.
Market Value – In real estate also known as the fair market value, the price at which the property would sell if both the buyer and seller were knowledgeable, willing, under no pressure, and had a reasonable time frame. This is usually determined by an appraiser. If a property is held for sale, the market value should be reduced by estimated selling costs.
NCREIF – The National Council of Real Estate Investment Fiduciaries is an association of real estate professionals who share a common interest in their industry. Although June 17, 1982 marks the official beginning of NCREIF, the difficult task of uniting a highly competitive industry actually began in the late 1970s. Following several meetings, 14 investment managers, with the assistance of the Frank Russell Company (FRC), agreed in principle to form a non-profit entity to foster research on the asset class. This led to the development of a database from which the Russell-NCREIF Index was created. On January 1, 1995, thirteen years after its inception, NCREIF assumed full responsibility from FRC for the Index, its publication and distribution. Today, NCREIF’s vast membership is comprised of investment managers, plan sponsors, academicians, consultants, appraisers, CPAs and other service providers who have a significant involvement in pension fund real estate investments. Members of NCREIF participate in the following six working committees: Accounting, Education, Performance Measurement, Portfolio Strategy, Research and Valuation. Members of NCREIF meet three times a year to address and solve industry issues. Since the fourth quarter 1978, NCREIF has published the following indices on a quarterly basis:
New Business – New money received by existing or prospective clients which ultimately increases Assets Under Management ("AUM"). New Business includes discretionary commitments when a written statement has been obtained from the client, non-discretionary acquisitions (for "bring me a deal clients") when the deal is consummated and asset takeovers.
Net Assets Under Management – Net Assets Under Management are defined as Gross Real Estate less Mortgage Payable, and is reported at ownership percentage.
Nominal returns – See discussion of Real Returns.
Non-discretionary [International Term = Discretely Managed] – A portfolio may be considered non-discretionary only if client-imposed investment restrictions hinder or prohibit the application of the firm’s intended investment strategy.
One Year Trailing (Twelve Months Rolling) – Return calculated by linking the monthly returns for the twelve months leading up to a specified date.
Open-End Fund – A pooled vehicle that in real estate usually allows for single or continuing contributions, subject to possible constraints, and which is considered to be ongoing and evolving in its investment program.
Opportunistic – Investments which take on considerable additional risk in order to achieve a higher return. Typical sources of risk are: development, land investing, operating company investing, international investing, distressed properties or debt, and high leverage. Expected 12% - 20% real rate of return.
Privately Held Client – Investor is a company with shares outstanding that are held by private investors.
Public Pension Fund – Retirement plans funded by government agencies. Plans receive contributions from the municipality, county or state and/or its employees for the purpose of giving their workers income after retirement. Investments are primarily in bonds, stocks, mortgages, and real estate.
Publicly Traded Client – Investor is a company with shares outstanding that are traded on an exchange.
Publicly Traded/Group – Publicly Traded: An entity typically a corporation, the shares of which are traded on nationally recognized exchanges (NYSE, Pacific Exchange) or over the counter via NASDAQ. Group: An investment club comprised of multiple investors.
Real Returns – Real Returns are typically discussed in incentive fee contracts as hurdle rates required by the client. A real rate of return is a nominal return (actual return) adjusted for the effects of inflation. In other words, a real interest rate is the growth of your purchasing power and a nominal interest rate is the growth rate of your money. In order to convert a nominal return to a real return, you cannot just subtract the inflation rate, but must add one to the rates and divide the nominal rate by the inflation rate as follows: (1 + Nominal rate) ¸ (1 + Inflation rate) = 1 + Real Rate. (1 + 15%) ¸ (1 + 3%) = 1 + Real Rate. 1.15 ¸ 1.03 = 1.1165 or 11.65% If you know the real rate and the inflation rate, you can solve for the nominal rate by adding one to the rates and multiplying them. (1.1165 x 1.03 = 15%)
Target Returns – The client’s expected return or the portfolio managers anticipated return for the current year. Returns are nominal total returns, before fees.
Tax Credit Investing – Created to provide financial incentives for the development and/or rehabilitation and preservation of privately owned affordable rental housing. Investors receive federal tax credits for 10-15 years.
Tax Exempt vs. Taxable – Tax exempt status is determined from the investor’s perspective. Accounts included are US Pension Fund clients, Endowments, Foundations, and Trusts. Also included are the pension participation portion and nonparticipation portion of the General Account. Accounts excluded are foreign investors, the taxable portion of insurance accounts and other taxable investors. Taxable refers to the amount of income, after deductions and other items are subtracted from adjusted gross income, subject to income taxes.
Time Weighted Return (TWR) – A return which measures the performance of the manager’s investment decisions irrespective of the size of the portfolio being managed or when various capital transactions or cash flows (i.e., contributions and distributions) occur. For example, Portfolio A with $3 billion in assets earning quarterly total returns of 2%, 2.5%, 3% and 10% will have the same annual TWR (18.5%) as Portfolio B with $1 million in assets earning quarterly total returns of 10%, 3%, 2.5% and 2%. In both cases, the quarterly returns are ‘linked’ by adding one to each return and multiplying (1.02 * 1.025 * 1.03 * 1.10 = 18.5%). The effects of timing are therefore neutralized so that the performance of Portfolio Manager A can be compared to the performance of Portfolio Manager B. TWR represents the growth rate of a single invested dollar.
Total Returns – The components of the total rate of return consist of market value net income return before investment management fees, and the appreciation return, which reflects the realized and unrealized gains or losses of the fund. Income is based on accrual, market value accounting and recognized at the investment level.
Union/Taft Hartley – A pension plan jointly trusteed and administered by union and management representatives. Funded through collective bargaining agreements.
Unitised – Distributions or dividends for a particular fund which are paid on a per unit or per share basis.
Yankee Corporate Debt – Bonds sold in the United States, denominated in US dollars, but issued by foreign corporations or governments. This allows a US citizen to buy a bond of a foreign firm or government but receive all payments in US dollars, eliminating exchange rate risk. |
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