Does the suspension of trading on several of the UK’s largest open-ended property funds highlight a collective gap in the nation’s investment knowledge? Property is a long-term investment which can provide diversity in a well-balanced portfolio. Repeat after me... Property is a long-term investment ... And, well, you get the point...
Those readers who have achieved diploma level four will have had this hammered into their investment-adviser DNA.
So you would hope that the clients who ploughed their money into the plethora of open-ended commercial property funds in the last few years would also have some understanding of the illiquid, albeit lucrative, nature of such an asset class.
But this is apparently not the case, and last week – as fallout from the Brexit vote continued – investors were queuing to take their cash out of some of the UK’s largest open-ended commercial property funds.
A run on the funds meant that several investment houses were forced to suspend trading on the funds; withdrawals were in danger of exhausting the funds’ cash reserves and there were fears that they might be forced to sell some of their physical holdings.
This would of course come at the expense of investors who wanted to stay in the funds.
Investing in commercial property on a collective basis is still relatively new.
But it is worrying that investors appear not to have understood the nature of the investment they have so readily been putting their cash into.
As long as the UK economy remains a going concern there will be a need for commercial property. Things may stall in the years following our exit from the EU – they could improve, they could get worse.
But over the long term there will be a need for bricks and mortar; even wholly internet-based companies need a physical building in which to house their staff.
Advisers will have explained that you buy into property, you buy into it long term. It doesn’t get any more simple than that.