Beware of real estate funds that can keep your money PRISONER


After a 30-year career in property management, Lynn Jackson was eager to retire in December. It is therefore a cruel irony that the 65-year-old woman has been denied access to her pension because she is trapped in a frozen real estate fund.

Ordinary investors have around £ 13.5 billion in savings in real estate funds, which typically own office buildings, warehouses, restaurants and shops. But a slew of funds were on hold when the pandemic struck due to uncertainty in the housing market.

Today, the Mail reveals how experts predict investors may be forced to wait until next year before they can access their money.

A multitude of real estate funds were put on hold when the pandemic struck due to uncertainty in the real estate market

Diane Earnshaw, of the Square Mile investment research group, says: “Real estate funds rely on expert appraisals to determine property values.

“Valuing such a property was extremely difficult during the foreclosure. It was not possible to assess a store building, for example, when the store was not open for business.

Sectors such as retail, hospitality and fitness have slowly reopened, but normal activity levels must resume before restrictions on access to funds can be lifted.

Real estate funds are forced to hold part of investors’ money in cash, to pay those who want their savings paid back. But once that cash reserve is depleted, they have to sell properties, which takes time.

Following a flood of withdrawal requests, the funds were closed to avoid being forced to sell buildings at discounted prices, to the detriment of other investors.

The city’s watchdog, the Financial Conduct Authority (FCA), said fund suspensions exist to “protect investors in exceptional circumstances.” Many investors will remember when the popular Woodford Equity Income fund was frozen in the wake of a flood of withdrawal requests due to concerns about its performance.

The fund was eventually closed, with savers losing up to half of their investments.

Lynn Jackson, who lives in Leeds with her husband Dean, 71, attempted to cash her £ 15,000 pension pot with Aviva earlier this month.

But after submitting the forms, she received an automated email stating that her application had been denied.

It appeared that this was due to the fact that half of his pension is held in Aviva Investors Pensions Property Fund – reserved for pension investors only – which had temporarily prohibited withdrawals.

Lynn had chosen to invest half of her savings in the fund because she believed the property was a good bet in the long run.

“I was livid,” she says. “I wanted to access my pension during the summer so that I could buy a caravan and start thinking about family vacations when I retire in December.

“At no time was I told that there was a problem accessing the money from this fund. And in addition, half of the money is in other funds that are not suspended.

“I tried to contact Aviva to challenge the decision, but it got nothing.”

It was only after Money Mail intervened that Aviva admitted that its refusal to pay money was a mistake.

Bricks and Mortar: Real estate funds typically own office buildings, warehouses, restaurants and stores

Bricks and Mortar: Real estate funds typically own office buildings, warehouses, restaurants and stores

The company says Lynn will now receive the portion of her savings that aren’t in the fund – but it’s unclear when she will be able to access the rest of her money.

Ms Earnshaw said: “The uncertainty surrounding how to value property has been lifted in some areas, such as warehouses and factories, which are once again open for business.

However, it is unclear when all real estate funds will be open and uncertainty persists for the hard-hit retail sector.

Even when funds reopen, investors need to prepare for losses, says Ryan Hughes, head of active portfolios at AJ Bell.

“Large real estate funds have seen declines of up to 7% since the start of 2020, meaning that when the suspensions are lifted, savings could go down or will have decreased by the same amount,” he said.

“Investors in real estate funds should prepare for a very bumpy race over the next few months. “

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Investors might be even more upset that they will be charged a fee as long as their funds are frozen. According to AJ Bell, the typical fee is 0.82%, which is slightly higher than the 0.75% average for standard funds.

Things could also get worse for real estate fund investors who want quick access to their cash: the FCA has proposed new rules that would require savers to give up to 180 days notice if they want their money.

And, although they will commit to withdrawing their money, they will not know what price they will get until the notice period is over.

The consultation on the new rules ends in November. If they are given the green light, the FCA plans to present them early next year. Experts say the proposals could deter many people from investing in these funds.

However, Ms Earnshaw said: “If there was a notice period, it could mean that the funds wouldn’t need to keep so much investor money in cash as a reserve for withdrawals, and more could be invested. , which could improve returns compared to longer term.

As part of the diversification of your investment portfolio, it is recommended to have some exposure to real estate as it is unrelated to the performance of the stock market.

As a general rule, however, you shouldn’t have more than 10% of your total portfolio in real estate, especially if you need quick access to cash.

moneymail@dailymail.co.uk

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