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Woodford debacle sparks surge in UK property fund redemptions

Woodford debacle sparks surge in UK property fund redemptions

Investors are pulling greater amounts of money from open-ended property funds after the Woodford saga emphasised the issues with holding illiquid assets in open-ended structures.

Figures from Morningstar show nearly £2bn had been pulled from open-ended property funds in 2019 so far, with 56 per cent of the outflows occurring between June and September.

Neil Woodford was forced to suspend his flagship Equity Income fund at the start of June when Kent County Council asked to pull all of the £260m it had invested in the portfolio through its workplace pension scheme.

When Kent County Council’s request arrived the fund did not have enough liquidity to meet the redemptions and was suspended. This eventually led to the administrators' decision to wind down the fund. Consumers are expected to lose at least 30 per cent of their remaining investments.

The liquidity issues highlighted by the episode have prompted the industry to question the suitability of illiquid assets held in open-ended funds.

Similar questions were raised in 2016 when multiple property fund were suspended when wealth managers withdrew money following the Brexit referendum.

IMorningstar shows open-ended property funds had been experiencing outflows since that time - but this year outflows have already matched those seen in 2016.

Scott Gallacher, chartered financial planner at Rowley Turton, said: “The findings regarding outflows are not that surprising given many people’s concerns about the UK generally, due in part to Brexit, but also about the high street with some retail landlords having issues with their tenants.

“No doubt the Woodford suspension raised the same potential issue with property funds and helped focus people’s minds.

"Open-ended property funds will always have this potential issue and it’s important that investors ensure that they have a sufficient timescale and other resources available to cover any potential suspensions. Otherwise they would be best to consider closed ended funds or avoid property entirely.”

Paul Stocks, director at Dobson & Hodge, agreed, adding that while closed-ended funds offered some solutions and avoided the risk of ‘gating’, they did introduce other risks which investors needed to be mindful of.

“I suspect that, if the risks of open-ended funds holding property continue to make headlines, the popularity may well fall.”

imogen.tew@ft.com