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Largest property funds on slow route to reopening

Largest property funds on slow route to reopening

Canada Life’s decision to reopen its UK property fund is unlikely to herald the end of suspensions in the sector, with the end of 2016 looking a safer bet for most portfolios.

The company became the first provider to reopen an indefinitely suspended fund last week. This came two months after it joined Standard Life Investments, Aviva Investors, Henderson, M&G and Columbia Threadneedle in gating UK real estate portfolios in the wake of a spike in redemptions following the EU referendum.

The insurer said it remained cautious on the outlook for the asset class, and most of its peers have already opted to keep their portfolios closed for at least another 28 days.

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Aviva Investors has gone further, estimating that its Property Trust is likely to remain suspended until the first quarter of early 2017 at the earliest.

Progress is also slow at Henderson and M&G – the two largest UK retail property fund managers. But both may yet be able to reopen ahead of Aviva’s own 2017 estimate.

On July 31, 11.2 per cent of the Henderson UK Property fund was held in liquid assets. By August 24, this figure had increased to 13.9 per cent, according to an update from the asset manager in which it confirmed the suspension remained in place.

Chief executive Andrew Formica told analysts on July 28 that the fund may target a liquidity buffer of around 20 to 30 per cent before reopening. Based on the current run-rate of disposals, that would imply the suspension is lifted towards the end of this year.

M&G has said its own fund will not reopen until cash levels reach at least 12.5 per cent. As of July 31, this weighting stood at 5.1 per cent. Manager Fiona Rowley secured sales equivalent to 1.5 per cent of the fund’s assets in the four weeks immediately following the referendum vote.

The pace of disposals may have since increased given the calmer markets seen recently, and even simply maintaining the June rate will see the fund’s target cash level reached by December.

This timeline is based on the assumption that managers are not selling off their highest quality assets first, a tactic that would suggest subsequent disposals take longer to complete.

Ms Rowley said last month that some rivals had conducted a firesale of assets in the immediate aftermath of the suspensions. But funds that remain suspended have little need to do so, and the M&G manager said she would not be tempted by “sharks” offering immediate transactions but only at steep discounts.