Process
We operate a systematic, disciplined and explicit investment management approach that combines the strength of our fundamental market knowledge skills with the rigour of quantitative analysis techniques. Our portfolio construction disciplines combine the application of top down quantitative techniques in regard to portfolio structure composition with bottom up evaluation methodologies with respect to stock selection.

The primary objective of our Investment management process is to build risk efficient real estate portfolios which provide our clients with consistent relative outperformance over the medium to long term. To this end the financial and performance implications of all decisions relating to our client portfolios are evaluated. The process is conducted in three distinct stages:

THE THREE STEP APPROACH

STEP ONE Fundamental Research
We formulate real estate market forecasts every quarter based upon the Hermes economic house-view. Real estate sectors, markets and locations are ranked on relative performance attractiveness. Over 150 market sectors and locations are monitored by the Research and Strategy Team - primarily focused on identifying those locations where we anticipate superior rental growth and target markets where we believe there is sufficient discount in the price and a suitable income yield level.

STEP TWO Portfolio Structure
We continually analyse the portfolio of our client to ensure that the active risks we take are both understood and deliberate. This ensures that we can monitor these risks against the benchmark and our market forecasts.

To assist in portfolio composition, we employ selected portfolio techniques to construct portfolios with asset allocation structures capable of producing relative excess returns over expected benchmark performance. Portfolio simulations are conducted within a controlled risk management framework to produce a strategic target portfolio.

Our aim is to produce a portfolio return given explicit levels of risk. The strategic target portfolio is customised to ensure it adheres to stated policy and objectives as well as investment guidelines and restrictions. Broad, strategic medium term sector and geographic target allocations are set on the basis of the composition of the investment universe for institutional property as represented by the IPD Universe. Tactical adjustments are made within specified ranges for the one to two year performance horizon and against relative market sector forecasts. The strategic portfolio plan specifies the portfolio framework within which a clients asset allocation will be managed and implemented.

Medium term strategic allocation targets can be underweighted or overweighted in line with short-term tactical performance considerations. These can be driven for example by short-term relative attractiveness of specific market opportunities. A degree of pragmatism is required, however, when trying to meet all target allocations.

In formulating an overall real estate portfolio strategy aimed at optimising performance, our investment management process gives equal weight to the importance of stock selection as to portfolio structure and composition.

STEP THREE Stock Selection
Our stock selection philosophy is based upon the requirement that every real estate asset must earn its keep in the portfolio.

We deploy quantitative screening techniques based upon four principal financial ratio tests to identify investments with favourable growth, value and cash flow characteristics. The financial analysis undertaken is presented in the form of a Strategic Property Plan (SPP). This explicitly establishes projected total returns, net cash flows, irrecoverable costs and capital expenditure requirements over a three year period for an individual property.

Once approved, the SPP becomes the blueprint for operating the investment management of an asset and implementing specific asset enhancement projects.

This disciplined approach to stock selection ensures that our specialist market groups and research team are always focused upon the most important sell, buy and active management assets in a client portfolio.

Whilst the overall Investment Management Process places significant importance upon both financial and quantitative performance techniques - the specialist knowledge and market expertise within our market groups is a key component in seeking to drive relative outperformance from superior stock selection and asset management skills.