UK property funds freeze €17bn
Three more asset managers have put their UK commercial property funds into lockdown after the Brexit vote, leaving over £14.8bn (€17.3bn) frozen in the biggest seizing up of funds since the 2008 financial crisis.
Henderson Global Investors, Canada Life and Columbia Threadneedle became the latest groups restricting withdrawals from commercial property funds, joining M&G Investments, Aviva and Standard Life Investments, which have all suspended trading in their UK commercial property funds since Monday.
On Wednesday, Henderson Global Investors said it had temporarily suspended trading in its £3.9bn UK Property PAIF and PAIF feeder funds due to “exceptional liquidity pressures” given uncertainty after the Brexit vote and the other suspensions.
It was followed within the hour by Columbia Threadneedle, which said it had suspended trading in its £1.4bn Threadneedle UK Property Fund.
Canada Life said it had also suspended its about £500m Canlife Property and Canlife UK property funds, describing this as a deferral of requests to withdraw investments. “The deferral can be for up to six months, enabling the funds to ensure property values reflect market conditions,” it said in a statement.
Meanwhile, Aberdeen Asset Management and Legal & General have announced further measures to adjust the value of their portfolios amid Brexit uncertainty.
Aberdeen last night announced a “dilution adjustment” on its UK property and feeder fund, which will apply a 17% reduction to the fund’s price for investors seeking to exit the fund.
Legal & General IM has today announced an additional -10% “fair value adjustment” to the portfolio of its UK property and feeder fund on top of the previously announced -5% adjustment, meaning a total -15% downward adjustment.
“While these adjustments are undoubtedly steep, bear in mind that most listed closed-end UK commercial property investment companies, are currently trading discounts in excess of -20% to their published net asset values,” said Jason Hollands, managing director of Tilney Bestinvest.
With the outright gating of investors in funds managed by the likes of Standard Life, Aviva, Columbia Threadneedle, Canada Life, Henderson and M&G, and steep adjustments being applied by Aberdeen and Legal & General much of the UK open-ended commercial property fund sector is therefore in effect, temporarily, no longer “open-ended”, Hollands said.
Andrew Bailey, the new chief of the Financial Conduct Authority, said on Tuesday suspensions have been designed to allow a valuation process to take place in times of redemptions, but there are issues with the structures of open-ended property funds that need to be addressed.
“The problem these funds face is that it takes time to sell commercial property to meet withdrawals, and the cash buffers built up by managers have been eroded by investors heading for the door,” one senior analyst commented in a press release from London Central Portfolio.
Uncertainty after the Brexit vote and suspended trading in UK property funds drove the sterling below $1.30 to levels last seen in 1985, as the Bank of England said early this week economic risks caused by the referendum had “begun to crystallise”.