Aberdeen Standard Investments, BMO, Janus Henderson, Columbia Threadneedle and Aviva Investors suspended trading in their respective open-end real estate funds today due to valuation uncertainty as markets continue to be rocked by market panic. coronavirus.
The groups join M&G which suspended its Â£ 2.3bn property portfolio at the end of last year due to liquidity concerns, but the most recent closings have been attributed to the Covid-19 virus which has struck markets around the world.
Columbia Threadneedle was the last group to make its announcement this afternoon, confirming the suspension of transactions on its investment fund and feeder fund Threadneedle UK Property Authorized.
Industry experts believe all open-ended real estate funds will follow suit and halt trading
No transaction request after noon yesterday (March 17th) has been processed and new requests will not be accepted. The group said the suspension is in line with upcoming FCA rules that require a fund to be suspended if more than 20% of its assets cannot be accurately valued.
He said a review of the decision will be carried out every 28 days with his custodian while fund manager Gerry Frewin added: “Our aim is to protect the interests of investors in the fund, always ensuring the fair treatment of all investors, whether trading now or investing for the long term.
âWhile we understand that this may cause some inconvenience, our decision to suspend trading will prevent any investor from being disadvantaged by redeeming the fund or investing new money in the fund at an incorrect price. ”
Meanwhile, BMO Global Asset Management also made an announcement this afternoon, confirming the suspension from trading of its BMO UK real estate fund and BMO Property Growth & Income fund, as well as their respective feeder funds.
He said the decision was taken following significant uncertainty declared by the permanent independent appraisers regarding the underlying assets of the two portfolios to “reflect the unprecedented ramifications of the global Covid-19 epidemic.”
A spokesperson said: “The suspension complies with FCA rules under COLL 7.2 and its 19/24 policy statement, which require funds to suspend trading in units if significant uncertainty is applied to it. more than 20% of the real estate assets of a fund.
âThe decision to suspend trading of the funds (and their feeder funds), in accordance with FCA requirements, is designed to protect their investor base by restricting trading in units where uncertainty over the valuation basis could result in potentially unfair treatment of investors. ‘
The virus crisis shed light on the structural flaw of open real estate funds
The group confirmed that the suspension was was not linked to any liquidity event in any of the funds and did not know when trading would resume, but would “constantly review the situation”.
Aberdeen Standard Investments made a similar announcement this morning, saying it would suspend all transactions in its Â£ 1.7bn Standard Life Investments UK real estate fund and its Â£ 1.1bn Aberdeen UK real estate fund.
Janus Henderson and Aviva Investors also suspended their respective open-ended real estate funds this morning, after Kames Capital was the first to take the plunge yesterday.
In its official statement announcing the suspension of its Â£ 460million UK real estate fund, Aviva Investors said the coronavirus “Had an impact on the UK property market and made it difficult to assess the property owned by the funds with the same degree of certainty as it would otherwise be”.
Kames Capital, which was the first to shut down its Â£ 585million property income fund yesterday due to the current ‘turbulent market conditions’ due to the coronavirus, issued a similar statement, claiming its SIV CBRE had ruled that ‘he could not accurately assess the holdings within the fund and therefore made the recommendation to close.
The group added: ‘The challenges of accurately pricing properties are a problem for the entire real estate investment industry. This is due to a number of specific events which have combined to increase the level of uncertainty in the stock markets which in turn has led to periods of significant selling as we have seen in recent weeks.
âThe main one of these events is the current coronavirus crisis, which is of real concern to all of us. At the same time, we have had to deal with a sharply falling oil price as well as the impact of the ongoing Brexit negotiations. These problems affect all areas of the stock market, including real estate investing.
Following the Kames shutdown, Janus Henderson announced the same fate for his Â£ 1.9bn UK real estate PAIF this morning.
According to its website, despite a cash position that the fund has maintained to achieve a âreasonableâ level of redemptions, âsignificant market uncertaintyâ caused by the coronavirus pandemic has led its appraiser to also declare uncertainty over evaluations.
The last time open-ended real estate fund closures in the UK took place at such an extreme level was after the EU referendum vote in 2016 due to uncertainty and mass buyouts.
However, it is important to remember that on this occasion the suspensions are not due to redemptions or liquidity issues but because independent appraisers are unable to accurately assess property values ââin these unprecedented times. .
With these recent closings, as well as the suspension of M&G at the end of 2019, around Â£ 11bn of assets are now stranded in suspended real estate funds.
Tilney’s Hollands compared real estate fund closures to those in 2016 following the EU referendum
Jason Hollands of Tilney said: âIn these turbulent times for the stock markets, physical real estate funds are under pressure due to both bearish sentiment and the potential for vacant homes to increase if some tenants go bankrupt in the current economic crisis.
âThe shock of the coronavirus crisis comes at a difficult time for commercial real estate funds. The funds faced considerable headwinds in 2019 due to uncertainties surrounding Brexit and a very difficult year for UK retailers. ‘
Ryan Hughes, head of active portfolios at AJ Bell, added: “WWith independent appraisers finding it impossible to accurately assess the property given major economic uncertainty, there is no choice but to suspend transactions.
âIn 2019, the FCA announced new rules forcing a fund to be suspended if there is significant uncertainty over the pricing of at least 20% of assets.
“Although these rules do not come into effect until September 2020, they have effectively been adopted by asset managers in the face of such economic turmoil.”
Investors will naturally find these closings painful in such an uncertain environment, but for now, nothing can be done. Open-ended real estate funds face the problem of taking the time to try and offload large real estate assets in order to generate liquidity, and current market conditions will only make this more difficult.
Hughes added: “With the FCA continuing to review the suitability of illiquid assets in traded funds on a daily basis, this must certainly spell the end of such structures to avoid damaging investor confidence in the fund industry.”
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