PropertyOct 16 2020

Aegon and ASI property funds remain closed after review

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Aegon and ASI property funds remain closed after review
Credit: Jon Giddens

The suspensions of both the Aegon and Aberdeen Standard Investment property funds remain in place following the fund houses’ valuations at the end of September.

The asset managers told FTAdviser there was “no change” to the gating of their open-ended property funds, despite valuations being conducted last month after the material uncertainty clause had been lifted.

In early September, the Royal Institution of Chartered Surveyors recommended a general ‘lifting’ of material valuation uncertainty from areas of UK real estate, essentially allowing property funds to reopen if the asset manager saw fit.

At the time, Aegon said it was to stay gated until at least the fund’s next valuation point, which was at the end of September, while ASI revealed it was taking a similar approach.

However, it has now emerged the September valuations have not changed the fate of investors trapped in the funds.

An investor update from Aegon said the fund would remain suspended until its liquidity position was at an “acceptable level” for the fund to reopen, as the fund’s cash level was currently below the target liquidity level.

Aegon added: “The impact of the government imposed lockdown in March, the economic downturn and uncertainty caused by the Covid-19 pandemic has created exceptional conditions for the UK commercial property market. 

“The introduction of material uncertainty clauses has severely restricted the operation of the investment property market. 

“Transaction volumes are dramatically lower than previous periods and as a result, the pipeline of disposals that the fund had arranged in quarter 1 2020 to increase liquidity has been disrupted.”

ASI’s latest update said that although the funds had managed to raise liquidity levels throughout the suspension, the portfolios would remain gated in order to allow the teams sufficient time to “progress further sales”.

Funds reopening

Aegon and ASI’s approach was mirrored by some funds in the market, but others have jumped on the valuation clause lifting as a sign to allow investors access to their cash.

St James’s Place bucked the immediate trend and opened its fund on the first day (September 9), while Columbia Threadneedle’s equivalent portfolio was reopened a week later.

The LGIM UK Property fund became open for business earlier this week (October 13) while the suspension has been lifted on Royal London's fund since the end of September.

But Aviva is monitoring the market while Janus Henderson, BMO and M&G Investments are keeping their funds suspended to allow for the raising of additional liquidity.

How it works

Rules announced by the Financial Conduct Authority last year require property funds to automatically suspend when their valuers find material uncertainty over the pricing of 20 per cent or more of their assets.

This led to 'bricks and mortar' UK property funds available to retail investors, with about £13bn of assets between them, suspending trading in the third week of March following disruption caused by the coronavirus crisis.

Major UK valuation houses have been meeting twice a week since — in conjunction with Rics — to discuss market activity and decide the time to lift the material uncertainty clause.

If 80 per cent of a fund’s assets are in sectors of the market where the clause no longer applies, they are allowed to re-open.

Meanwhile the FCA is consulting on rules which would require investors to give notice — potentially up to 180 days — before their investment is redeemed from an open-ended property fund.

It is an attempt to curb the “liquidity mismatch” between the underlying property held in such funds and the daily basis on which investors buy and sell units.

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