Aegon property fund closure could signal 'end' for sector

Creasey said these assets suffered from a high vacancy rate during the past year.

He said: “The fund is not overly exposed to retail or leisure – arguably the biggest problem sectors in UK property at present - however, it is heavily underweight the high-flying industrial sector, and has significant exposure to regional (excluding London) office property, which has also struggled during the pandemic.

"With a high vacancy rate, the fund has clearly felt the full effects of the pandemic and struggled to turn this around. Its vacancy rate has rocketed to 23 per cent despite being at just 1.2 per cent two years ago.”

He added: “The broader UK property market returned 6 per cent over the same period, while the average property fund returned -1.6 per cent, so significant underperformance will also have contributed to this decision.”

McDermott said that although these tertiary assets would provide a higher yield, they were much harder to sell.

“You’ve still got a better chance of selling a London office than one in a tertiary region,” he told FTAdviser.

What happens now

Ryan Hughes, head of active portfolios at AJ Bell, said the challenge for Aegon was to ensure investors aren’t out of pocket when it sells the fund’s assets. 

“The challenge Aegon now has, like Aviva, is that the market knows they are a forced seller and this may make it difficult to sell down the underlying properties at the right price.

"As we have seen with the Woodford fund closure, getting the balance right between time and price is extremely difficult and sensitive and therefore the clear communication of this is key.”

Aegon told investors that it would pursue the sale of all its properties and intended to make a series of payments throughout the closure period as the sales are completed.

Once the funds have closed, investors will be advised when distributions will begin

McDermott said that none of this was good news for investors, who haven’t been able to access their cash for over a year.

“Is this good news for investors - probably not. They can’t get their money back for a while, and what [Aegon] will probably do is pay it back in phases. 

“So you’ve still got this holding that you can't trade and you're going to get your money back in dribs and drabs.”