Why is management rights inflation proof?
When a management rights is purchased it usually composed of two major business factors which are in the form of two contractual agreements. The caretaking agreement, and the letting agreement.
Under the remuneration section within the caretaking agreement there will be a clause in reference to the annual adjustment of remuneration in accordance to inflation or a fixed %, whichever is higher. Therefore in the large majority of cases, the value of the management rights business increases as inflation increases.
Given that short to mid term we are in a macroeconomic inflationary period, expect the management fee of management rights to increase quite dramatically in line with inflation.
Moreover, given a deflationary environment the investor is also protected from loss of value with a protection clause that insures the investor that no coming year the management fee will be less than the prior year.
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