Wave of suspended UK property funds trapping £ 13bn in cash for investors


At least six other UK property funds halted trading on Wednesday, bringing total investor money trapped in vehicles to £ 12.7bn as coronavirus-induced market selling contagion swept across the country. estate market.

Standard Life Aberdeen has suspended trading in its £ 1.7bn and £ 1.1bn UK real estate funds, and separately from a £ 550m global real estate fund. Columbia Threadneedle, Legal & General and BMO Global Asset Management have done the same in their £ 1.1bn, £ 2.9bn and £ 510million vehicles. This follows Aviva Investors’ decision to suspend its own £ 461million fund earlier Wednesday.

The suspensions come as UK property funds find themselves in “completely unknown waters,” said John Forbes, an independent property consultant. “How much is a pub, hotel, or business space worth if you can’t use it?” What is the value of an office if no one can enter it? “

SLA, Columbia Threadneedle, L&G, BMO and Aviva have suspended trading after independent appraisers said they could not provide accurate and reliable valuations for portfolio properties following sharp market swings this month- this. Kames Capital and Janus Henderson suspended their real estate funds earlier this week.

Financial Conduct Authority rules require real estate fund managers to consider suspending funds under extreme market conditions, with the tool intended to allow them to sell assets without risking a ‘fire sale’. This requirement will be applied more strictly from September, when real estate funds will have to cease operations, if there is significant uncertainty about the value of more than 20% of their portfolios.

Boris Johnson’s speech to the country on Monday, in which the British Prime Minister announced a dramatic escalation in the country’s response to the coronavirus, catalyzed the introduction of a “material uncertainty assessment clause” in all valuation reports, said Rupert Johnson, global head of valuation and consulting at Knight Frank.

Following the speech, the major consulting firms agreed on a uniform clause which has since been used by real estate funds to justify the suspensions.

Paul Richards, managing director of the Association of Real Estate Funds, a professional body, said real estate funds had little choice to suspend “in order to ensure the protection of investors, primarily long-term retirement savers” .

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 an open-ended fund structure, which allows investors to withdraw their money on a daily basis, is compatible with assets such as real estate that can take months to sell.

UK property funds have been hit by significant 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 stand at £ 12.7 billion.

However, the tumult in the market would not only impact funds traded daily, said Jason Hollands, managing director of online investment service Tilney. “The problem cited by the funds is the inability to accurately value holdings, not the fact that they see redemptions by investors. Open funds are in the eye of the storm, but it will be interesting to see what the listed companies do.

The shares of listed real estate companies have also been battered by the spread of the coronavirus. The UK’s three largest home builders in terms of the number of homes built – Persimmon, Barratt Developments and Taylor Wimpey – have seen their stock prices fall by more than 50% in the past month, while homeowners retailers like Intu and Hammerson saw even bigger declines.

Achieving an accurate valuation of real estate has been made more difficult by the rapid acceleration of the government’s response to the crisis, Hollands said. “Last week we had a government budget proposing £ 12 billion in measures; yesterday it was up to £ 350 billion. It is difficult to calculate the impact of this.