Three UK asset managers said they were unable to handle strong demand from investors seeking to exit property funds, another sign of how an accelerating drop in government bond prices is forcing pension funds to reallocate their assets.
Schroders said it would make redemptions originally scheduled for Monday through July next year, while Columbia Threadneedle said volatile market conditions had forced it to switch from daily to monthly payments. At the same time, BlackRock also imposed new restrictions on withdrawals.
It shows once again how funds based on hard-to-sell assets struggle when the volatility that has dogged the stock and bond markets all year has investors demanding a quick refund.
A liquidity crisis in the UK last week, triggered by falling gilt prices, worsened the situation for some asset managers, with defined benefit pension plans, who are important investors in the funds UK institutional real estate, rapidly selling a wide range of assets to meet collateral demands.
“It’s a pretty weak market and you’ve added some volatility. Switch to monthly repayments [from daily] reduces your need to sell burning assets,” said a real estate fund adviser.
Calum Mackenzie, investment partner at Aon, the pension consultants, added: “I think it’s part of a longer term trend of pension funds to [cut risk] by selling less liquid assets. . . This trend is now being exacerbated by last week’s run on short-term cash by pension funds.
British pension funds have been reducing their real estate holdings for several months, as rising interest rates and a slowdown in activity weighed on the real estate market. The fall in UK government debt prices has also increased the proportion of funds’ portfolios in real estate, prompting some to reduce their exposure.
These forces have intensified at a time when conditions in private markets, including equities, real estate and credit, are already challenging. A sharp deterioration in lending conditions has made it difficult to complete transactions in unlisted assets, according to industry players.
The £2.7bn Schroders Capital UK property fund received redemption requests worth £65.3m in the second quarter of this year, which were due to be paid by October 3. Schroders paid £7.8million to meet withdrawal requests and said the outstanding balance would be deferred until “or before” July 3 next year, under rules that allow it to defer redemption requests for 24 months.
“It is expected that the deferred repayments will be paid following the successful completion of future asset disposals,” Schroders said.
He is in the process of selling Jubilee House, a high-rise redevelopment in Stratford, east London, which he bought in 2013 for £11.9million. Schroders has signed a contract to sell him for £63million in a deal that is expected to be completed by April 2023.
Columbia Threadneedle has also introduced new provisions for redemptions from the £2.3 billion Threadneedle Pensions pooled ownership fund, meaning investors will be able to make withdrawals on a monthly rather than daily basis, citing “constraints liquidity resulting from recent market volatility and an increase in redemption requests.
BlackRock, the world’s largest asset manager, also imposed redemption restrictions on the £3.5bn BlackRock UK Property fund after receiving large withdrawal requests in the second quarter.
These restrictions echo previous crises when asset managers imposed “gates” to prevent investors from withdrawing from daily-traded property funds following the Brexit vote and during the early months of the coronavirus pandemic. coronavirus in 2020. In both cases, professionals valuing the assets held by the fund have struggled to put an accurate price on commercial real estate projects.