Investors should brace for further property fund suspensions in the near future, after a number portfolios closed today and yesterday.
The £585m Kames Property Income fund was suspended last night while the £2bn Janus Henderson UK Property PAIF and £460.7m Aviva UK Property funds closed their doors this morning; Aberdeen Standard Investments and and Columbia Threadneedle Investments gated property funds later in the day. They join M&G Property Portfolio, which was suspended in December last year.
Reasons for the suspensions include liquidity concerns, questions over valuations and “market uncertainty”. The property fund has suffered heavy outflows for much of the recent past, straining its members and their portfolios of illiquid assets.
Ryan Hughes, head of active portfolios at AJ Bell, said: “With independent valuers finding it impossible to accurately value property given the major economic uncertainty, there is little choice but to suspend dealing. It’s almost certain that all open-ended property funds will now have to suspend dealing.
“Investors will understandably find these closures distressing at such an uncertain time in markets. However, there’s nothing they can do now but wait it out and hope that the suspensions don’t drag on for too long. The length of the M&G closure highlights that it’s not a quick task to offload large property assets in order to generate cash, and current market conditions will only make that harder.
“With the FCA continuing to look at the appropriateness of illiquid assets in daily traded funds, surely this must spell the end of such structures to avoid damaging the confidence of investors in the funds industry.”
Tilney Investment Management Services managing director Jason Hollands agreed that the recent property fund suspensions are unlikely to be last, given “uncertainties around pricing in the current environment and the likelihood of significant redemption requests”.
“The shock of the coronavirus crisis comes at a difficult time for commercial property funds. Funds faced considerable headwinds in 2019 from the uncertainties around Brexit and a really tough year for UK retailers,” he added.
“With election decisively resolved in December and the prospect of a significant increase in public spending an infrastructure investment, 2020 had started to look a little brighter for UK commercial property market until coronavirus appeared on the horizon.
“In the current environment we are therefore continuing with our suspension of ratings on all open-ended physical property funds, which we put in place in early December.”
Adrian Lowcock, head of personal investing at Willis Owen, is also expecting more property funds to be gated in the very near term.
“We should expect more fund suspensions over the next 24 hours and through this week,” he finished.
“This is another crisis for the open-ended property sector and a reminder that illiquid assets do not work well with daily dealing. With the FCAs focus on liquidity the managers of such funds need to think how to offer their services to investors in a different structure.”