BlackRock and Schroders latest to freeze real estate funds


A new wave of UK real estate funds, including vehicles run by BlackRock and Schroders, have been forced to halt trading, bringing the total amount blocked in these funds following the coronavirus outbreak to over £ 20bn .

Trading was halted after real estate companies such as Knight Frank, CBRE and JLL said they could not accurately assess UK property as the pandemic forced the closure of shops, bars and restaurants. offices, and derailed almost all transactions for commercial buildings.

The suspension of the £ 3.4bn BlackRock UK Property funds and the £ 2.4bn Schroder UK property funds – which have quarterly or monthly redemptions and are typically held by institutional investors – follows the lockdown more frequently traded funds in mid-March, which have a higher proportion of retail investors.

Five institutional funds managed by Royal London and Legal & General, including one with assets of £ 3.4 billion, were also in the latest round of suspensions.

“The basic problem is the same: There is fundamental uncertainty about the NAV,” said independent real estate consultant John Forbes. “It’s made worse if the rental income doesn’t arrive. This potentially makes the assessment more difficult.

On March 31, the valuation date for the monthly and quarterly traded funds, the valuators considered that there was “significant uncertainty” about the value of the underlying assets of the funds, which resulted in the suspensions.

The material uncertainty “is still going to be there on June 30. I very much doubt we got out of it on September 30. They can’t resume trading before then,” Forbes said.

In the meantime, the funds may continue to charge fees to clients. “They still have to manage the funds: they probably have to do even more,” said Forbes.

Schroders said his real estate fund was “robust” and had a low allocation to the retail sector at 14% of its net asset value. Legal & General said its fund has “appropriate levels of liquidity,” adding that its assets are diversified by geography and industry.

Unlike retail investors in daily traded funds, institutions holding funds traded monthly or quarterly had access to a secondary market where they could continue to trade despite suspensions.

Daily-traded real estate funds have been hit by large cash outflows over the past year, creating liquidity risk issues for asset managers.

In December, M&G suspended its £ 2.3bn fund after being unable to sell properties to keep pace with investor buyouts. The M&G fund remains suspended. Including this fund, the total assets of investors trapped in UK property funds amounts to over £ 22 billion.

The last time real estate funds were forced to withdraw en masse was after the Brexit vote in 2016. This has raised questions as to whether open-end funds, unlisted funds that rise or fall as investors move in or out of money, are consistent with assets such as property that can take months to sell.