£15bn of investor cash marooned in property funds
ALMOST £15bn of savers’ money is now stuck in property funds after a slew went into lockdown amid concerns over the coronavirus.
In the biggest closure since the Brexit vote in 2016, Legal & General suspended its £3bn UK Property Fund.
Managers including Standard Life Aberdeen, Aviva and Columbia Threadneedle have followed suit, meaning 11 funds have banned withdrawals.
For worried savers, the suspensions will be reminiscent of the freezing of Neil Woodford’s doomed Equity Income fund last year. But rather than being caused by a series of demands from investors for their cash, these latest suspensions have been prompted by the uncertainty posed by coronavirus.
All of the fund managers said it has become near-impossible for their independent experts to provide an accurate estimate of the properties’ value.
Because the properties these funds own, such as office blocks and warehouses, do not change hands very often, unlike shares, they rely on expert valuations to tell the investors what they are worth. But independent property consultant John Forbes has said that the funds were in ‘uncharted waters’.
He added: ‘What is the value of a pub, a hotel, or retail premises if you can’t use it? What’s the valuation of an office if no one can get into it?’
Standard Life Aberdeen banned investors from pulling money out of three of its property funds ASI Global Real Estate, Standard Life Investments UK Real
Estate and Aberdeen UK Property, which together manage £3.4bn of investors’ money.
Columbia Threadneedle shut savers into its Threadneedle UK PAIF, Aviva froze its £442m UK Property fund and BMO shut the doors on its £502m UK Property fund and £444m Property Growth and Income fund.
The closures follows the suspension of Janus Henderson’s £2bn UK Property PAIF and Kames Capital’s £501m Property Income fund this week, and the £2.3bn M&G Property Portfolio fund last December. It means investors cannot access more than £13.6bn of their money.
The suspensions have reignited the debate over whether property funds should be allowed to offer savers the opportunity to pull their money out with a day’s notice, when the assets can take weeks or months to sell.
James McManus, chief investment officer of wealth manager Nutmeg, said: ‘These underlying investments do not have the daily liquidity that they are being advertised with, and the managers of these funds are misleading investors on this promise.
‘Unfortunately, it is no surprise that time and time again, it is the everyday investor who is left out of pocket, with no access to capital and expectations not met.’
The Financial Conduct Authority brought in new rules last year which force funds holding hardto-sell assets to give more information on how they manage liquidity, prompting by the suspension of several property funds after the Brexit referendum, as hordes of investors rushed to pull out money and the funds couldn’t sell their properties fast enough.