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Property fund demand surges after suspension saga

Property fund demand surges after suspension saga

Property funds are now back in demand after falling victim to the Brexit vote last summer, according to research.

Various large property funds were forced to pause trading in July when thousands of investors panicked after the EU referendum and pulled out of the investment vehicles. 

The funds gradually lifted their suspensions in the months after the Brexit vote, but concerns about liquidity in these open-ended products have not gone away.

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Earlier this month, the Financial Conduct Authority proposed a number of measures to prevent this issue from reoccurring.

According to research provider Cerulli Associates, which published its monthly report on European product trends yesterday (20 March), demand has returned to the sector, with net inflows amounting to €500m (£434m) in January.

This is a marked turnaround from the €800m (£695m) in outflows the sector had seen in December.

Looking at the largest 10 property funds sold in Europe, it was the UK-focused funds which saw the biggest net outflows in 2016, with €435m (£378m) pulled from the M&G Property Portfolio, and €333bn (£289m) pulled from Henderson’s UK Property fund.

The Brexit-inspired fluctuations have made experts question whether it’s a good idea to have daily dealing in funds when it take months to buy and sell their assets. 

But Barbara Wall, managing director at Cerulli’s European division, said a radical overhaul of the UK’s property fund market would serve "little purpose". 

"If the fallout from the Brexit vote showed anything, it was that markets usually return to some sort of order even after the most violent disruption.”

The Cerulli boss described the UK residential property market as “buoyant” and said it was a much-neglected area for funds. 

“With much of the market in residential funds dominated by unregulated funds and crowdfunding, for the smaller player, prepared to get down to the micro level, there is a real opportunity.”

She also said these funds help spread risk, which is particularly important when equity markets look overheated.

By comparison, shares in the closed-ended part of the property market recovered quickly in the immediate aftermath of the referendum and were far less traumatised overall.

Unlike property funds, shares in real estate investment trusts did not have to suspend trading, meaning they recovered better because investors knew there would be no panic sell-off.

Peter Lowman, chief investment officer at the Investment Quorum, said property funds are always the first casualty during times of disarray, but said the fact that the sector is uncorrelated to bonds and equities means it continues to be attractive.  

“It’s very difficult because people will go back into the sector because of the benefits of the asset class, so it’s only a matter of time before people put money back into commercial property funds.”

Yet the investment boss said people should still be wary, saying he always makes sure there is an exit strategy when choosing funds for clients.