Suspended property funds to continue charging

Suspended property funds to continue charging

Asset managers who suspended trading in their property funds last week are set to continue charging management fees, despite the fact investors’ cash is trapped inside the portfolios.

Over the course of last week, a string of eight asset managers closed their doors to dealing in their open-ended UK property funds amid the coronavirus crisis.

Kames Capital was the first to gate, announcing it had suspended trading due to “turbulent market conditions”, and soon Janus Henderson, Aviva Investors, Aberdeen Standard Investments, L&G, BMO, St James’s Place and Columbia Threadneedle had gated their equivalent funds.

All 12 portfolios — including two from Aberdeen Standard Investments and BMO and three from SJP — gated because the Covid-19 virus had 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.

But most of the asset managers are still set to charge their management fees, saying they were still actively managing the fund and would therefore continue to charge for that activity.

Columbia Threadneedle said: “We continue to actively manage the fund and therefore management fees will be accrued and paid when the fund opens.”

A spokesperson from Kames Capital said the fee was not being reviewed as the fund managers were still “very much actively managing the portfolio” for investors while Janus Henderson told FTAdviser the ongoing charges and transaction costs would be applied as normal.

Aviva said the current fee level would remain in place while the fund was suspended but noted this would be kept under review, while SJP was still working through the detail of the charges but stressed the funds would continue to be actively managed.

A spokesperson from LGIM said: “We continue to fully manage the fund with fees on the fund already among the most competitive in the market.

“This broad market event has been determined by the fund’s independent valuers placing a material uncertainty clause on their valuation. This means that we are able to continue to actively manage the fund in contrast to a liquidity driven suspension where raising liquidity becomes the priority.”

BMO and Aberdeen Standard Investments did not respond to FTAdviser’s requests for comment.

Paul Stocks, financial planning director at Dobson and Hodge, said it was a “tricky question” on whether fund managers should continue to charge fees on suspended portfolios.

He said: “I can see both sides of the argument. The client does not have the freedom they signed up for and they will ask us why they should pay for a fund that is suspended.

“But asset managers still have to do their work and they perhaps have more on their plate now than ever before.”

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.