Liberty Two Degrees (L2D) is to do away with its unpopular external management company (manco) but it still has some way to go to win the favour of institutional investors.

Since the listing of the company by parent Liberty Group in December 2016, fund managers have been critical of its external manco and complicated ownership structure, saying it has not created enough value to justify the fees it has received.

L2D’s share price rose 11% to R8 on Friday after it announced a deal with Liberty Group to convert itself into a real estate investment trust. L2D would also buy its external manager for R300m from Liberty.

Liberty Group’s controversial put option had also been cancelled. The put option allowed Liberty to sell assets to L2D at any time at net asset value regardless of L2D’s share price.

This could create a situation where L2D would be a buyer of assets regardless of whether these assets would actually improve the fund.

L2D also said it would acquire R1.2bn of properties from Liberty’s portfolio. It has not been disclosed which assets these will be.

Anas Madhi, a director at Meago Asset Management, said L2D had a lot of work to do to make up for the lack of returns.

"Eighteen months since listing and a 30% decline in share price. L2D eventually has restructured their company to get rid of a much-criticised put option by Liberty Group and an inevitable internalisation of the manco after giving shareholders undertakings at listing not to internalise the manco," he said.

"Furthermore, the latter comes at a cost of R300m to shareholders. As shareholders have had to bear the brunt of an ill-advised listing, with continuous shareholder value being lost, we would expect … [they] will question the basis of the valuation of the manco, especially considering it is a related party transaction," he said.

Evan Robins, a portfolio manager at Old Mutual Investment Group, said external mancos were unpopular and not considered to be best practice among listed property counters.

"Investors like companies structured around their interests, not that of a related party."