Real estate funds suffer ‘second worst month’ of exits in May

Real estate funds experienced the second month of cash outflows in May, according to data from the Calastone fund network.

UK investors repurchased £ 445million of their investments in the funds over the past month, the second worst month since Calastone started recording flows in 2015.

The worst month was March of this year, when £ 589million was withdrawn, compared to £ 314million in February and £ 128million in January.

Real estate fund outflows have now reached £ 5.6 billion after investors sold their stakes for 32 consecutive months.

Edward Glyn, Head of Global Markets at Calastone, said: “The record real estate fund outflows in March reflected investors experiencing capital losses before the end of the tax year, as they can be used to limit capital gains tax.

“We warned that the significantly lower capital outflows in April were likely to prove temporary, but we were surprised by the level of selling activity in May.

He added that the big change that may have impacted flows last month was the announcement of the delta variant of Covid, which may prove to be more contagious than previous variants.

“Anything that delays returning to offices and removing capacity limits in hospitality, retail and entertainment venues is bad for commercial real estate in the short term,” he said.

“Recent survey data suggests the long term could be darker as well, as companies plan to reduce floor space in the future. This appears to have stimulated the sale of real estate funds by investors who appear to be looking for reasons to be negative about the asset class. “

The structure of real estate funds has been called into question over the past two years, with the majority blocking redemptions during the pandemic due to valuation issues of their underlying assets.

The fundamental problem with funds is the liquidity mismatch between the fact that they can be traded daily and the illiquidity of a real estate asset.

Yesterday (June 8), Morningstar data showed just under £ 800million had been withdrawn from M & G’s real estate fund in the four weeks after it reopened to investors on April 10.

Last month Aviva decided to shut down its real estate fund due to liquidity issues.

The group said that over the past year, as many real estate funds have closed amid valuation uncertainty induced by the pandemic, it has become increasingly difficult to generate positive returns. while retaining sufficient liquidity to reopen the fund.

The firm stressed that, given the costs of acquiring, managing and disposing of real estate, size is particularly important for real estate funds.

The FCA has been reviewing the fund structure for over a year and last month postponed its decision to reform the sector as it considers creating a new fund structure to address the issue.

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