Daily Mail

Beware prop­erty funds that can keep your cash PRIS­ONER

- By Holly Thomas mon­ey­mail@dai­ly­mail.co.uk Business · Investing · Personal Finance · Investment Banking · Banking · Financial Conduct Authority

AFTER a 30-year ca­reer in prop­erty man­age­ment, Lynn Jack­son had been look­ing for­ward to re­tir­ing in De­cem­ber. So it’s a cruel irony that the 65-year-old has been de­nied ac­cess to her pen­sion be­cause it is trapped in a frozen prop­erty fund.

Or­di­nary in­vestors have around £13.5 bil­lion of sav­ings in prop­erty funds, which typ­i­cally own of­fice blocks, ware­houses, restau­rants and shops. But a slew of funds were sus­pended when the pan­demic hit be­cause of un­cer­tainty in the prop­erty mar­ket.

To­day, the Mail re­veals how ex­perts are pre­dict­ing that in­vestors may be forced to wait un­til next year be­fore they can ac­cess their money.

Diane Earn­shaw, of in­vest­ment re­search group Square Mile, says: ‘ Prop­erty funds rely on ex­pert val­u­a­tions to de­ter­mine what the prop­er­ties are worth.

‘Valu­ing such prop­erty was ex­tremely dif­fi­cult dur­ing lock­down. It wasn’t pos­si­ble to value a shop build­ing, for ex­am­ple, when the shop wasn’t open for busi­ness.’

In­dus­tries such as re­tail, hos­pi­tal­ity and fit­ness have slowly re­opened, but nor­mal lev­els of ac­tiv­ity need to re­sume be­fore re­stric­tions on ac­cess­ing funds can be lifted.

Prop­erty funds are obliged to hold a pro­por­tion of in­vestors’ money in cash, to pay to those who want their sav­ings re­turned. But once this cash re­serve is gone, they have to sell prop­er­ties, which takes time.

Fol­low­ing a flood of with­drawal re­quests, the funds were closed to avoid be­ing forced to dis­pose of build­ings at fire- sale prices, dis­ad­van­tag­ing other in­vestors.

City watch­dog the Fi­nan­cial Con­duct Au­thor­ity (FCA) says that fund sus­pen­sions ex­ist to ‘pro­tect in­vestors in ex­cep­tional cir­cum­stances’. Many in­vestors will re­mem­ber when the pop­u­lar

Wood­ford Eq­uity In­come fund was frozen fol­low­ing a flood of with­drawal re­quests amid con­cerns about its per­for­mance.

The fund was even­tu­ally closed, with savers los­ing up to half their in­vest­ments.

Lynn Jack­son, who lives in Leeds with her hus­band, Dean, 71, tried to cash in her £15,000 pen­sion pot with Aviva ear­lier this month.

But after sub­mit­ting the forms, she re­ceived an au­to­mated email stat­ing her re­quest had been de­nied.

It emerged that this was be­cause half of her pen­sion is held in Aviva In­vestors Pen­sions Prop­erty Fund — re­served for pen­sion in­vestors only — which had tem­porar­ily barred with­drawals.

Lynn had se­lected to in­vest half of her sav­ings in the fund be­cause she thought prop­erty was a good long-term bet.

‘I was livid,’ she says. ‘I wanted to ac­cess my pen­sion dur­ing the sum­mer so we could buy a tour­ing car­a­van and start think­ing about hol­i­days for the fam­ily when I re­tire in De­cem­ber. At no point had I been told that there was a prob­lem with ac­cess­ing money in this fund. And be­sides, half of the money is in other funds that are not sus­pended.

‘I tried to con­tact Aviva to chal­lenge the de­ci­sion, but got nowhere.’

It was only after Money Mail in­ter­vened that Aviva con­ceded that its re­fusal to pay any money was an er­ror.

The firm says Lynn will now re­ceive the por­tion of her sav­ings not in the fund — but it is un­clear when she will be able to ac­cess the rest of her money.

Ms Earn­shaw says: ‘ The un­cer­tainty sur­round­ing how to value prop­erty is be­ing lifted in some sec­tors, such as ware­houses and fac­to­ries, which are now open for busi­ness again. How­ever, it is dif­fi­cult to know when all prop­erty funds will be open, and there is still un­cer­tainty for the hard-hit re­tail sec­tor.’ Even when funds do re­open, in­vestors should pre­pare for losses, says Ryan Hughes, head of ac­tive port­fo­lios at AJ Bell. ‘The big prop­erty funds have seen falls of as much as 7 pc since the start of 2020, which means that when sus­pen­sions are lifted, sav­ings could drop or will have dropped by the same amount,’ he says. ‘Prop­erty fund in­vestors should be pre­pared for a very bumpy ride over the next few months.’ In­vestors might be fur­ther irked to know that they will still be charged fees while their funds are frozen. A typ­i­cal fee is 0.82 pc, according to AJ Bell — slightly higher than the av­er­age 0.75 pc for stan­dard funds. Things could get also worse for prop­erty fund in­vestors who want to ac­cess their cash quickly: the FCA has pro­posed new rules that would mean savers have give up to 180 days’ no­tice if they want their money. And, while they will be com­mit­ted to with­draw­ing their cash, they won’t know what price they will get un­til the end of the no­tice pe­riod.

The con­sul­ta­tion on the new rules ends in Novem­ber. If they are given the go-ahead, the FCA ex­pects to in­tro­duce them early next year. Ex­perts say the pro­pos­als could put many peo­ple off in­vest­ing in th­ese funds.

How­ever, Ms Earn­shaw says: ‘If there was a no­tice pe­riod, it might mean the funds wouldn’t need to keep so much of in­vestors’ money in cash as a re­serve for with­drawals, and more could be in­vested, which may im­prove re­turns over the longer term.’

As part of di­ver­si­fy­ing your in­vest­ment port­fo­lio it is rec­om­mended you have some ex­po­sure to prop­erty as it is not connected to how the stock mar­ket per­forms.

As a rule of thumb, how­ever, you should not have more than 10 pc of your to­tal port­fo­lio in prop­erty — par­tic­u­larly if you may need quick ac­cess to cash.

 ??  ?? Pic­ture: GETTY / PHOTOALTO
Pic­ture: GETTY / PHOTOALTO

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