Aberdeen Asset Management has suspended trading in its commercial property fund for 24 hours as it gives shareholders the option to back out of the vehicle, though they face a 17 per cent hit to their investment if they do.
According to an update, Aberdeen has decided to temporarily suspend trading in its £3.4bn UK Property fund and Property Feeder unit trust until midday today (7 July) so shareholders who have placed trades have the chance to withdraw.
The company said reducing the dealing price by 17 per cent means it could continue to provide liquidity in the fund, but admitted this drop might lead shareholders who have placed redemption orders to reconsider their decision.
A number of property fund suspensions have taken place over the past three days, as asset managers look to cope in a commercial property market which is suffering in the wake of the Brexit vote.
Yesterday Canada Life, Henderson and Columbia Threadneedle became the latest fund groups to suspend trading on their UK property funds and feeder funds.
Canada Life said the recent rise in requests to withdraw from its six property funds, which include both pension and life funds, prompted it to defer trading.
The company said the deferral, which can last up to six months, is to protect the interests of shareholders invested in property funds, which together have approximately £500m in value.
Standard Life Investments kicked off the week by suspending its property fund, swiftly followed by Aviva Investors and M&G.
Orders for subscriptions and redemptions in Aberdeen’s fund placed after midday on the 5 July will be processed today (7 July) at the diluted price.
In a statement, Aberdeen said: “It is important to note that the dilution adjustment has been imposed solely to reflect the need to dispose of properties quickly in order to provide liquidity.
“Doing so allows us to protect value for longer term investors.”
The UK’s vote to leave the European Union spurred on Aberdeen to pull down the market value of its open-ended property fund by 3.75 per cent.
Analyst at RBC Capital Markets, Peter Lenardos, said Aberdeen’s exposure to commercial property makes it vulnerable to outflows, with 4 per cent of its assets under management in property, of which 1 per cent of the company’s total assets are retail-focused with daily liquidity.
Earlier this year, Aberdeen converted its Property trust into a property authorised investment fund (Paif) structure as it looked to take advantage of more favourable tax arrangements.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said over half of the property fund sector is “now on ice”, and will remain so until asset managers raise enough cash to meet redemptions.
But, he said, to do that they need to sell properties, which he added is not a quick or painless procedure, meaning funds are likely to be closed for weeks and months, rather than simply a matter of days.
“Clearly there has been a knee-jerk reaction to Brexit in the commercial property sector, which may moderate over time,” Mr Khalaf said, adding investors in commercial property funds should not make decisions in a panic.
”Long-term investors should be willing to ride out periods of weakness, particularly when there has been such a sharp decline in fund prices without much evidence of a slowdown in the underlying property market.”
katherine.denham@ft.com
