Candy & Candy, the upmarket property developers, are venturing into fund management. Next week Smith & Williamson, the financial services group, will launch a £100 million Central London residential property fund. It will be managed by Christian Candy’s CPC Group, with interior design and property management provided by Candy & Candy itself.

So this must be a sign that the market is on the up?

Not necessarily. In fact, the launch of a fund aimed at retail investors is not always a good sign: small investors tend to lag behind institutional investors in trend-spotting. But prices are still a long way from their peak — so property investors believe there is still room for growth.

Where are the best investment opportunities?

Prime London is tipped to lead the way. Knight Frank’s latest report on the market points out that Central London is best placed to benefit from the global economic recovery, which is likely to outpace any upturn in the UK alone. This is the view of the Prime London Capital Fund (PLCF), which is looking to make new property purchases for the first time since the fourth quarter of last year.

London Central Portfolio is also seeking to take advantage of gains in prime property prices. Its Central London Recovery Fund, launched this year, is a “vulture” fund that aims to snap up distressed assets in London’s poshest postcodes in the six square miles around Hyde Park.

Are there funds that don’t just focus on London?

There are, but they are few and far between and tend to be quite specialist. Braemar Group seeks to capitalise on soaring undergraduate numbers with its UK Student Accommodation Fund. Dualinvest is designed to take advantage of the problems afflicting UK property companies by purchasing new stock from housebuilders then leasing it back to them. The investment is designed to offer an income of about 7 per cent a year for the three-year life of the unit trust.

How risky are these funds?

All investments carry some risk and, since most people’s largest investment is in their home, they may feel that they have sufficient exposure to UK residential property already. But this argument goes only so far: after all, many of us own our own homes, but few of us own property in Mayfair. Funds such as Candy & Candy’s do offer small investors the potential to own a piece of property that they would not usually be able to afford.

When choosing a fund, investors should be careful to look at how heavily geared it is — how much money the investment managers are borrowing. A highly geared fund will deliver the greatest returns should the market rise, but it will also deliver the heaviest losses should prices start to fall again. The Candy & Candy fund, for example, is likely to be 50 per cent geared, with £50 million borrowed and the rest raised from investors. London Central Portfolio’s Recovery Fund is 65 per cent geared, while the PLCF is 50 per cent geared.

Who regulates them?

One way of reducing risk is to “average” your position by making regular investments over time. This is not possible with closed-end funds such as Candy & Candy’s, but open-ended funds, such as PCLF, accept regular contributions. You should also check on who regulates the fund. In many cases, property funds are domiciled offshore. The PLCF, for example, is based in Guernsey and is regulated by the Guernsey Financial Services Commission — not by the Financial Services Authority.

Property funds: the lowdown

Details on the Candy & Candy Property Growth Fund are still sketchy, but it is thought that the managers will seek to raise £50 million and borrow a further £50 million. The fund will be closed-ended, running for five to seven years, and the minimum investment is likely to be about £50,000 — no details on charges have yet been released. It will be available to hold within a self-invested personal pension (Sipp).

www.candyandcandy.com The Prime London Capital Fund is a property unit trust, focusing on high-value London postcodes. Minimum investment is £1,000; annual management charge is 1.75 per cent.

www.dngim.com The London Central Residential Recovery Fund aims to give investors an average annual return of 15 per cent. This is a closed-end fund that will run for eight years. Minimum investment is £50,000.

www.londoncentralportfolio.com Braemar Group’s UK Student Accommodation Fund is open-ended and Guernsey-listed. Minimum investment is £10,000.

www.braemar-group.co.uk Dualinvest is designed to provide income, rather than focusing on capital growth, with an estimated average annual return of 7 per cent. Minimum investment is £10,000.

www.smith.williamson.co.uk