logo-loader

Aviva, Standard Life, L&G join rush to suspend UK property funds

Last updated: 14:33 18 Mar 2020 GMT, First published: 12:33 18 Mar 2020 GMT

Aviva plc -

Five UK property funds were suspended on Wednesday over property valuations because of coronavirus and industry experts said all such open-ended funds are likely to soon follow.

Aviva PLC’s (LON:AV.) investment arm on Wednesday gated its £460mln open-ended UK property funds, following the shuttering of Kames Property Income fund and the Janus Henderson UK Property funds a day earlier.

Standard Life Aberdeen (LON:SLA) later gated its giant £1.7bn and £1.1bn UK property funds, with Legal & General (LON:LGEN), BMO Global and Columbia Threadneedle also halting trading on their funds also on Wednesday.

Valuations not possible

Two of the largest independent valuation firms have said it is impossible to accurately value property given the major economic uncertainty due to the coronavirus, on top of Brexit and other shifts in different parts of the property market.

“Although there is sufficient liquidity in the fund, we have acted to safeguard the interests of all our investors by suspending dealing in the fund with immediate effect,” Aviva Investors said in a statement. “We will look to lift the suspension as soon as it is appropriate.”

But with independent valuations so difficult, it is unsurprising that all open-ended property funds have to suspend dealing, said Ryan Hughes, head of active portfolios at AJ Bell, and it may be some time before they can open again.

M&G PLC’s (LON:MNG) £2.5bn Property Portfolio, the largest in the sector, remains suspended since being pulled in December when the company reported seeing “unusually high and sustained outflows” amid “Brexit-related political uncertainty and ongoing structural shifts in the UK retail sector”. 

Hughes said while investors will find such closures distressing there was nothing they can do now but “wait it out and hope that the suspensions don’t drag on for too long”.

But he said fact that M&G’s fund remains closed 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.

History repeating - "but don't panic"

Dzmitry Lipski, head of funds research at Interactive Investor, said that history repeating itself with open-ended property funds is again raising questions about how appropriate this fund structure is for illiquid assets such as property.

New rules from the Financial Conduct Authority forcing the suspension of a fund where there was material uncertainty over pricing of at least 20% of the assets were due to come into force in September 2020, and the financial watchdog is continuing to examine whether such funds are appropriate vehicles for illiquid assets.

The structure of closed-end funds such as investment trusts, on the other hand, can be fully invested without concerns over liquidity, but their listed status means the price can be influenced by external factors other than actual property valuation.

“While most funds provide daily dealing, some underlying holdings often take much longer to sell and therefore need to hold cash positions for liquidity reasons, to meet redemptions or to manage large inflows,” he explained

“While this is a short-term illiquidity issue for open-ended funds, long-term investors who have a well-diversified portfolio, and do not need short-term capital or regular withdrawals, should not panic.”

Looking at investment trusts, many of which trade at discounts to their assets, Lipski said this was likely to lead to a volatile ride for coming months, “but the structure means managers can take a long term-view and investors can get out if they absolutely need to”.

Oriole Resources outlines 2023 achievements and future exploration plans

Oriole Resources PLC (AIM:ORR) CEO Tim Livesey and chief financial officer Bob Smeeton join Proactive's Stephen Gunnion with details of the company's 2023 financial and operational performance. Livesey highlighted successful exploration programs in Cameroon, at the Bibemi and Mbe projects,...

36 minutes ago