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ARA Asset Management reveals fees are all REIT managers care about

Donmihaihai wrote a piece here about his opinion on REIT manager ARA Asset Management’s comments on The Edge Magazine about its future prospect:

So after ADF1, there will be ADF2, maybe ADF3, 4, 5678910. As a shareholder, I must be happy lah because more private funds = more incomes = more dividends and higher share price.


What do shareholders want?

Good business that generate at least reasonable profit and surplus cash.

What is the business of ARA?

Assets Management. I.e. take money from clients, pool them and invest.

What do clients want?

Return on their investment, hopefully not losing money with adequate return on invested money.

To link them up, it is the inverse of …. good profitability = happy clients = well managed funds.

A well managed fund is one that most likely will produce good return on investment for its clients. So since when it has become irrelevant? This is the core, the main reason why ARA exists! Can someone help me by saying, “Oh it is fault of the unprepared writer who write without any understanding.”

But there may be something more to that. For a person like Mr Lim, it is unreasonable to think that he don’t understand this. And for many company, appearing in News or Magazine like “The Edge Singapore” is more for the sake of publicity than giving investor or shareholder a better understanding of their company. ARA needs publicity for lot of reasons. At the mist of doing so, never give out negative news/views, not even being perceived negatively because they may be get punished in ways more then they deserved. The best way to get through is —– give them what they want. They refer to whoever that read “The Edge Singapore.”

So how can we use this piece of information?

One, it clearly shows that as an income investor, investing in REITs for yields is not good in Singapore as the rules set on these trustee fees and acquisition fees is such that the manager earns more by acquiring more assets and making more transactions!

The structure is not to refine its underlying assets to yield more!

Until that changes in Singapore, this stupid comment by Mr Lim just shows that asset managers only care about making the REIT big big. That will make their pockets fat fat.

You get the feeling that we investors get the short end of the stick. The reits, instead of behaving like normal reits, end up as speculative plays. When another recession comes and assets gets revalued downwards, they ask us for more money.

If you are an investor, which one would you invest in? the manager or the reit?


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