Over half the funds in the UK Investment Association property sector have suspended trading since Standard Life Investments (SLI) halted its vehicle earlier this week.
The shock suspension of the SLI property fund was the first of several, with the list extending now to other major firms, such as Aviva Investors, Columbia Threadneedle, Henderson Global Investors and M&G Investments.
Nevertheless, other real estate funds remain open for business. In a statement, Legal & General Investment Management said it had sufficient liquidity to meet redemptions – although it has adjusted prices downward by 15%, saying this would protect investors and reflect the funds’ fair value.
Aberdeen Asset Management has done likewise, adjusting prices by 17%. Kames Capital has adjusted direct property values by 5%, which equates to a reduction of 3.71% of the fund’s value.
Danny Cox of fund supermarket Hargreaves Lansdown said further suspensions and more fair value adjustments would be “unsurprising”.
“A common property market trend is that money starts flying out when times are bad – and suspensions create a vicious cycle, in that when funds start telling investors they can’t get their money out, it makes people want to leave,” he said.
“Funds could remain suspended for six months – property managers are going to have to sell a number of properties to meet redemptions, and that doesn’t happen overnight. We’ve been consistently bearish on open-ended property funds for years for precisely this reason.”
While this turmoil closely echoes the market milieu that presaged the financial crisis, Cox doesn’t believe a repeat is in the offing, due to much improved capital positions on the part of financial institutions, and property companies being far less indebted.
Moreover, the wave of redemptions was praised by the Investment Association in a briefing note, stating the move is the “most important tool” that protects investors.
Suspended trading in UK property funds has put renewed pressure on sterling. The pound has fallen precipitously against the dollar to $1.30, a 31-year low.
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