Obvers who invested in real estate funds only to find they weren’t able to withdraw their money still had to pay over Â£ 40million last year in management fees, with some still paying funds closed today.
Investors have pumped billions of pounds into “open-ended” real estate funds promising they could withdraw their money at any time.
However, the Covid economic crisis has hit real estate valuations, raising fears of a stampede by investors out of funds, so fund managers have closed doors, banning buybacks.
Controversially, they continued to charge investors fees even though many had asked to leave.
Investment Week magazine today calculated these management fees to be Â£ 40million in 2020, while some still charge them today as Â£ 2.8bn of investor money remains blocked in three funds that have not yet reopened.
The fees are likely to be even higher, the magazine noted, as data for St James’s Place, Aviva Investors and Canlife’s real estate funds was not available.
Investment Week also said it did not include other costs such as ownership, transaction and transaction fees. The calculated fees only apply to the management fee of the fund, along with various other fees such as ownership, transaction and transaction fees.
The M&G real estate portfolio had the highest fees, in part because it was the largest fund. It continues to be closed today – 17 months after closing. M&G closed the doors in December 2019 citing the uncertainty of Brexit – long before Covid caused other funds to close in March.
It was the second time in four years that supposedly instant access funds had closed, leaving investors unable to buy or sell.
St James’s Place, Columbia Threadneedle, Royal London, Legal & General Investment Management, Aberdeen Standard Investments, BMO Global Asset Management and Janus Henderson have all reopened their funds since.
Aegon, Aviva and M&G remain closed, saying they want more cash to deal with potential repayments so they don’t have to make a property sale in the event of a fire.
The FCA has suggested that, rather than pretending to investors that they will always be able to get their money back, fund managers should make redemptions available only on 90 or 180 day notice so that they have more time to. sell properties if mass redemption requests so require.
Some fund managers rejected the idea because it might put investors off. The magazine quotes Charles Incledon, client director of Bowmore Asset Management, who said it would make investors “a lot less enthusiastic” and could make them ineligible for ISAs.