Members who selected funds such as the Threadneedle Pension Property Fund, which announced its temporary closure on March 20 this year, have started to receive letters informing them of the problems that are affecting both final salary and money purchase pension schemes.
In one letter from a national book publisher, members were told: “In the light of the current market volatility resulting from Covid-19, a number of property manager, including Threadneedle, have decided that, in order to protect the interests of investors, their funds should be suspended temporarily.”
The open-ended, daily dealing UK property market saw eight funds announcing soft closures in March within 48 hours of each other.
This came on top of severe market turmoil, brought about not just by of the Covid-19 lockdown and ensuing economic uncertainty, but also by the Russian-Saudi oil price standoff.
Such black swan events are supposedly rare, but in the past 20 years, markets have seen quite a few of these swimming along with the tide - and wary investors and their advisers will have taken steps to avoid being caught up in the slipstream.
However, too many have been blindsided by the attractiveness of illiquid assets such as property. Consider the demise of Neil Woodford, the equity income star manager, whose funds could not meet the redemption request from Kent County Council last year and which quickly fell into disarray.
It has been a year since the Woodford saga started to really unravel, and even as problems were emerging, large do-it-yourself distribution businesses such as Hargreaves Lansdown were still maintaining Mr Woodford’s flagship fund on their best buy lists, no doubt still believing in the ability of the man to keep making money.
The writing had been on the wall for illiquid assets in daily dealing funds for quite some time, however, with the Financial Conduct Authority making frequent investigations and issuing warnings ever since June 23, 2016 - almost four years ago - when the vote to leave the European Union caused a rash of redemption requests from property funds, who could not flog enough of their illiquid holdings to meet the demands.
Four years later, such property funds have been yoiking up the drawbridge and slamming it down again with such frequency it’s a wonder that all the investors have not fled the castle for safer ground.
Pension fund valuation letters going out to customers now are keen to stress that the current closures are purely “due to difficulties with valuations in the current climate, not as a result of liquidity concerns”.
But with Brexit around the corner, anyone still invested in daily dealing, open-ended property funds - whether in pension funds or other investment portfolios - may be best advised to get out as soon as the gate is up to avoid these funds opening and closing on them in ever-increasing frequency.
simoney.kyriakou@ft.com
