Investors failed to learn lessons of 2007

Emma Ann Hughes

Emma Ann Hughes

Banks may be better capitalised, but post Brexit vote I am getting a sense of de ja vu about 2016.

How did I know Standard Life wouldn’t be the last to shut the gate on retail investors in its property fund?

Article continues after advert

I knew because I remember 2007 and New Star having to suspend trading in their property fund.

Heavy redemptions and longer timescales involved in selling properties meant the liquidity buffer on the New Star International Property fund plummeted and on 25 November 2008 the fund was suspended.

By close of play on Tuesday (5 July), M&G and Aviva had followed Standard Life’s lead and analysts predicted Henderson could also suspend their fund soon.

Henderson did indeed soon shut the gate on retail investors, along with the likes of Canada Life and today (8 July) Prudential.

There was temporary suspension by Aberdeen and repricing by Legal & General.

What a shame. Have investors learnt nothing from the events of the credit crunch?

Property is not something you can sell at the drop of a hat, or panic-stricken request of an investor.

For managers to raise enough cash to meet redemptions they need to sell properties, and as any homeowner knows, that is not a quick or painless procedure.

Should all of these managers desperately try to sell right now?

Would the investors be happy if they accepted less than what these properties may be worth just to achieve a quick sale?

Ultimately these funds are likely to be closed for weeks and months rather than simply a matter of days, if managers are to try and gain the best possible price in the current climate for the bricks and mortar contained in their funds.

The fact not even a decade has passed since property funds last had to close the gate on retail investors is disappointing.

Clearly time has not made the average investor any wiser.

Only advisers who failed to clearly flag to investors that this type of fund isn’t capable of delivering your cash whenever you feel you need it should fear a complaint to the Financial Ombudsman Service.

However unquestionably the same investors trying to drag their cash out of property funds right now are also likely to complain they were unaware they couldn’t get instant access to their investments.

Brace yourselves for a rise in complaints about this type of fund to the Financial Ombudsman Service.