All property funds expected to gate ‘within hours’ as £11bn trapped

All property funds expected to gate ‘within hours’ as £11bn trapped

All open-ended UK property funds are likely to suspend trading “within hours”, experts have predicted, as nine portfolios closed their doors to dealing amid the coronavirus crisis.

Kames Capital was the first to gate, announcing it had suspended trading due to “turbulent market conditions” yesterday evening (March 17).

Since then Janus Henderson, Aviva Investors, Aberdeen Standard Investments, L&G, BMO and Columbia Threadneedle have suspended their equivalent funds.

All nine portfolios — including two from Aberdeen Standard Investments and BMO — have gated because the Covid-19 virus has impacted the UK property market and made it difficult to value the property owned by the funds with the same degree of certainty as would otherwise be the case. 

Rules announced by the FCA last year, due to come into effect in September 2020, require property funds to automatically suspend when their valuers find material uncertainty over the pricing of 20 per cent or more of their assets, but it seems property funds are acting on this advice now despite the rules not yet being implemented.

The FCA was concerned there was potential for investors to be treated unfairly if they bought or sold units at a price that did not reflect the underlying assets. Therefore, if the underlying assets could not be properly valued, the regulator said there was a “good case” for requiring the fund to suspend dealing temporarily.

Experts have predicted the funds closed so far will soon be followed by the remaining UK property funds.

Darius McDermott, managing director at Chelsea Financial Services, said: “You would expect them all to shut as it stems from the same issue.

“There are two big valuers — CBRE and Knight Frank — and they will be consistent with all their clients. They will all shut within 24 hours.”

Ben Yearsley, investment consultant at Fairview Investing, agreed, adding: “We’re looking at a situation where everything will close.

“This is not about liquidity, this is about how they cannot put a value on the assets.”

Mr Yearsley said it was a different scenario to M&G, which suspended its fund over liquidity issues in December last year. The M&G Property Portfolio remains gated.

The current suspensions, including M&G, mean about £11bn of customer assets are now locked in suspended property funds.

FundFund size (m)Suspended? Y/N
Aberdeen UK Property£1,050Yes
Aviva Inv UK Property£460Yes
BMO UK Property£510Yes
BMO UK Property G&I£440Yes
Janus Henderson UK Property£1,975Yes
Kames Property Income£585Yes
L&G UK Property£945Yes
LF Canlife UK Property£365No
M&G Property Portfolio£2,339Yes, in Dec 2019
Royal London Property£412No
SLI UK Real Estate Platform£1,711Yes
Threadneedle UK Property£1,116Yes

Mr McDermott said the suspensions were likely to last for the foreseeable future — until the “volatility settles and the valuers can put a value on the assets”.

He said: “You’re potentially looking at months. Who knows how long this volatility will stay for? Globally, governments are advising lockdown for six to 12 weeks.”

Mr Yearsley thought realistically the funds were looking at a couple of months of suspension.

He added: “If you look at China, when the coronavirus cases started falling then economic activity picked back up. If we assume the same will happen here, then we’re probably talking a couple of months.”