Standard Life Investments has suspended trading of its UK real estate fund following a surge of outflows.
The suspension, which came into force on Monday 4 July, is due to “exceptional market circumstances” after the UK’s Brexit vote on 23 June.
The company told investors suspended trading in its £2.9bn (€3.4bn) UK real estate fund will end “as soon as practicable”, and will be formally reviewed at least every 28 days.
Investors have pulled money as a result of uncertainty for the UK commercial real estate market following the EU referendum result, which has forced the firm to halt trading “to avoid compromising investment returns from the range, mix and quality of assets within the portfolio”, Standard Life said in a statement.
It added that “unlike investing in equities, the selling process for real estate can be lengthy as the fund manager needs to offer assets for sale, find prospective buyers, secure the best price and complete the legal transaction. Unless this selling process is controlled, there is a risk that the fund manager will not achieve the best deal for investors in the fund, including those who intend to remain invested over the medium to long-term.”
The fund, which invests in offices, warehouses and shopping centers, is thought to be the first UK property fund to suspend trading since the 2007-2009 financial crisis, when real-estate funds were forced to freeze operations after outflows increased, contributing to a property-market slump that saw values drop more than 40% from their peak in the UK, Bloomberg reported.
Land Securities Group fell as much as 5.8% and the FTSE 350 Real Estate Investment Trust Index declined as much as 3.8%, adding to a 4.2% drop on 4 July.
Asset managers also declined in London trading. Schroders lost 5%, Aberdeen Asset Management slid 6.6% and Henderson Group which has also made a market value adjustment on its real estate funds, was down 3.9%. Standard Life shed more than 5% on Tuesday.
Following the UK’s decision to leave the EU, retail investors have pulled out of property and UK equity funds and switching into global and Japan equities, according to analysis by online investment platform Rplan.co.uk.
Although Brexit will weaken domestic real estate sentiment, impact may be limited by easier monetary policy, Chris Urwin, head of Global Research at Aviva Investors, said recently.
In the wake of Brexit, there’s “little hope of any bounce in sentiment” for UK real estate and prospects are expected to be hit both in the short and medium term, Urwin said.