Jeff Prestridge  

Investors should avoid the 'next big thing'

Jeff Prestridge

Jeff Prestridge

Many open-ended commercial property funds have been closed for business for nearly as long as they have managed to reopen their doors.

Lockdown remains a big issue, as evidenced by the fact that £12.5bn of investors’ assets is trapped in these funds as a result of dealings being suspended.

The funds’ holdings cannot be valued satisfactorily while individual properties cannot be offloaded promptly enough to free up cash to pay investors wanting out. It is nothing short of a pig’s breakfast.

Valiantly or foolishly, the Financial Conduct Authority has just come up with proposals that it believes will alleviate this log jam.

It has suggested an 180-day waiting period for those investors wanting out. This, it argues, would give the fund managers more time to dispose of assets, bringing to an end the fire-sale of properties. Calm rather than panic.

The regulator’s proposals seem well thought out, but they skip the key issue.

Namely, that open-ended investment funds are simply not designed to hold illiquid assets such as property and unquoted stocks (think Neil Woodford and Woodford Equity Income as was).

There is only one suitable home for unquoted assets and that is the closed-ended investment trust where investors (come rain or shine) can always liquidate their holdings – even if the price they get is not particularly attractive.

Property investment trusts have traded throughout the crises of the past four years and the managers have not been forced into panic asset sales.

So, going back to Mr McColgan and his pearls of wisdom. Maybe it is time to adapt the ‘main’ asset classes that Mr McColgan says investors should hold to read as follows: cash, fixed interest, commercial property investment trusts and shares.

Enjoy what remains of the summer.

Jeff Prestridge is personal finance editor of The Mail on Sunday