A domino effect has started since Standard Life Investments suspended trading on its UK property fund following the Brexit vote.
UK’s biggest insurer Aviva Investors made the same move and M&G Investments became the third asset manager to take the step just one day after Standard Life’s announcement.
Aviva said today it had prevented retail investors from selling out of its £1.8bn (€2.1bn) UK Property Trust since Monday afternoon. The decision to halt withdrawals by investors in the fund came after “extraordinary market circumstances” led to “a lack of immediate liquidity” in the Aviva Investors Property Trust.
“Consequently, we have acted to safeguard the interests of all our investors by suspending dealing in the fund with immediate effect. Suspension of dealing will give Aviva Investors greater control in managing cashflows and conducting orderly asset sales in order to meet our obligations to investors wishing to redeem their holdings,” Aviva said.
M&G also said in a statement the decision to suspend trading temporarily was taken to protect the interests of the funds’ shareholders, following a surge in redemptions. The move “will allow the fund manager time to raise cash levels in a controlled manner, ensuring that any asset disposals are achieved at reasonable values”, it said
M&G’s Property Portfolio, a broadly diversified fund which invests in 178 UK commercial properties, manages assets of £4.4bn (€5.1bn) as at 30 June 2016.
The announcements have sparked concern that other funds would follow suit, Financial Times reported.
Legal & General dropped 5.6% by midday, Aberdeen Asset Management shares were down 6.1% and Standard Life lost 3.5%. Land Securities, the UK’s largest property company, dropped 4.3%.
Suspended trading in UK property funds has put renewed pressure on sterling, which hit a new 31-year low against the dollar, falling 1.8% to $1.3090 as the Bank of England said economic risks caused by the referendum had “begun to crystallise”.
Andrew Bailey, the new chief of the Financial Conduct Authority, said in a press conference 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.
According to InvestmentEurope estimates, based in FE data, over €9bn in assets have been potentially affected after Standard Life, Aviva and M&G suspended trading of their UK property funds.
The chart below compares the performance of the top five and bottom five property funds from an universe of Investment Association Property Sector Funds from 24 June to 5 July. The performance has been rebased in euros.