The pressure on property fund investors has mounted after a number of managers took drastic action shortly after the UK voted to leave the European Union (EU).
Asset managers Aberdeen, Aviva, Canada Life, Columbia Threadneedle, Henderson, M&G and Standard Life Investments all suspended trading on their UK property funds after investors rushed towards the exit door.
SLI was the first to act on 4 July by suspending trading on its UK Real Estate fund after witnessing substantial post-referendum outflows. Aviva Investors followed a day later, citing “extraordinary market circumstances.”
Richard Edwards, managing director at real estate investment company Aevitas, said these changes could cause an administrational problem when rebalancing model portfolios and may change how property is allocated in the future.
“This is the second time such actions have been introduced over the past 10 years, therefore we are looking at using real estate investment trusts (Reits) in future or property share-based funds to gain exposure to bricks and mortar.”
Mr Edwards added that so long as advisers understand their customers and the suspensions are only for a short period, it is unlikely to cause a major problem.
Concerns about the future of UK property funds increased before the referendum, as a number of asset managers switched from offer to bid-pricing fearing investor sales.
In February, the Investment Association (IA) Property sector witnessed its highest outflows since the financial crisis in 2008 and this continued with £500m withdrawn during April and May.
The UK’s decision to exit the EU appears to have extenuated this with both residential and commercial property expected to be hit over the short term.
Less than a week after the initial suspension, Aberdeen reversed the decision on its UK Commercial Property fund, but applied a dilution levy at 17 per cent, designed to penalise investors who wish to vacate the fund.
Russell Chaplin, chief investment officer of property at Aberdeen, said this was designed to protect all types of investors. “We have to draw a balance between the properties that we sell, the properties that we retain, and the price at which those who wish to sell units in the fund can exit.”
Mr Chaplin explained that Aberdeen needed to convert property into cash quickly to maintain liquidity, but timescales made it difficult to achieve the highest possible price.
He added that no further changes to its property funds are anticipated, but the situation will be monitored.
Dennis Hall, chartered financial planner at London-based Yellowtail, feels that such drastic changes were necessary and that this could represent a good time to enter invest in property funds.
“It does not alter my long-term perception of the sector, and for new investors it presents a potential buying opportunity to benefit from discounts.”
