Hong Kong should adopt stronger governance practices for real estate investment trusts (reits) to protect investors and minimise conflicts of interest between external management and unit-holders, an international investment professionals' association says. External managers, which may not be listed entities themselves, charge reits a fee to carry out management duties on their behalf. After reviewing governance practices in Hong Kong and other regional economies, the CFA Institute suggested all reits set up their own independent board of directors to monitor managers' performance. 'In Hong Kong, fee structures reward managers even when actual performance is poor. This is bad for unit-holders,' said Angela Pica, the institute's policy analyst of standards and financial market integrity in the Asia-Pacific. 'Reits distribute about 90 per cent of their net property income to investors irrespective of managers' performance,' she said, adding that management fees and structures should better align the interests of investors with those of managers. The institute called for mandatory annual general meetings so that investors could meet the board, the management team and the trustee. Another suggestion was to restrict an investor from owning more than 50 per cent of a reit's issued units. 'This allows minority unit-holders to exercise their rights and prevents them from being marginalised ... when there is anything significant, such as potential takeovers or removal of a manager, which need a 50 per cent vote,' Pica said, adding that stricter governance practices would promote growth in the reit market. Meanwhile, Hong Kong-based real estate investment firm Gaw Capital Partners plans to launch a yuan-denominated reit in the second quarter of this year to raise between US$600 million and US$800 million, according to a dealReporter report. The report said Gaw had hired Morgan Stanley, HSBC and Bank of China (International) to handle the reit listing, which would come after Cheung Kong (Holdings) launches the first-ever yuan-denominated reit, perhaps as early as next month. 'The investment firm would need to see if the listing requires any approval from Beijing and is considering what assets would fit investor appetite,' the report quoted an insider as saying. Gaw could not be reached for comment yesterday.