diversification within property sector is key to hIgh returns

Diversification in family office investments through participation in many asset classes is important, according to Paddy Walker, managing director ofJ Leon Group. He believes diversification could be a panacea in troubled times.

Structural, vertical and horizontal diversification is important to achieve portfolio management, believes Walker. Correct diversification within a portfolio is achieved by strategy and timing, by manager, by geography and by structure.

J Leon Group, a fourth-generation family investment group whose primary asset class is prime-prime UK commercial property, achieves diversification through participation in many asset categories. These categories include investments in hedge funds, funds of hedge funds, private equity single and funds of funds, ungeared property investment and sustainable house building, as well as brownfield developments. "We take the yield from property portfolios and allocate to other asset categories," Walker explains.

The company also uses niche strategies including commodities, aviation finance, timber management, distressed real estate, pipeline infrastructure, Indian logistics and Indian green housing to diversify its investment portfolio.

The main objectives are to achieve above-average returns consistent with a balanced risk profile through diversification while aiming for no direct gearing within the portfolio. This allows the company to maintain and grow assets.

Asset allocation is overweight in investment grade property with 62% invested. "We have 5% in property development assets, 10% in long-only management and 8% in hedge funds. We have 4% investments in other unquoted companies, 9% in international private equity funds and the balance as cash," says Walker.

Portfolio management has grown a lot since 2002. The number of equity managers in which the company invests has risen from three to 38 and its number of hedge funds has grown from 13 to 37.

"We want to get into the best and the top funds. We are less good at choosing hedge funds however and we have to be careful. I do not like a manager to make 20% in performance fees when he does badly so we tend to go for more private equity," Walker concludes.