UK Property Funds in Distress

UK Property Funds in Distress – Standard Life Investments has suspended trading in its UK property fund blaming “exceptional market circumstances” following the EU referendum result.

The fund manager said the number of investors asking to withdraw their money had increased following the vote. “The suspension was requested to protect the interests of all investors in the fund,” it said in a statement. The last time Standard Life stopped investors taking their money out of the fund was during the previous financial crisis.

The £2.9bn fund invests in a mixture of commercial real estate in the UK, including office blocks, shopping centres and warehouses.

The move comes after Standard Life Investments, the insurer’s fund management arm, wrote down the value of the fund by 5% last week, saying the Brexit vote had “negatively impacted” valuations for UK commercial property.

It said the suspension would end “as soon as practicable” and it would review the decision every 28 days.

Most property investment funds always retain cash to meet redemptions but when a lot of people want to redeem their units this causes problems for property funds. It takes time to sell off commercial property.

In the immediate aftermath of the EU referendum vote, a number of big property funds cut the estimated value of their holdings. Henderson Global Investors and Aberdeen Asset Management reduced the value of their UK property funds by 4% and 5% respectively.

Several fund managers have also decided to price their property funds weekly, rather than monthly, to try to safeguard themselves against market volatility.

Data published earlier showed that investors sold off UK and property funds in favour of bonds in the run up to the EU referendum.

Private investors withdrew a net £342m from UK funds in May, compared to a £1.1bn investment in the same month last year, according to figures from fund manager trade body the Investment Association.

“We could now see a new wave of investors being unable to liquidate their property funds quickly, and investors that do pull out their money could put “downward pressure” on commercial property prices, this can create a vicious circle.

Remember my recent blog, “It’s the Market Stupid”:-

“So the “investment behaviour cycle” starts again, we often make investment decisions based upon how we feel rather than what we know, resulting in investment sell offs, these occur because a sufficient number of investors “sort of know they are doing the wrong thing by selling now” but they prefer to take a small loss – “rather than lose all of their money”.

Falling stock markets scare investors and Rising stock markets attract investors.

Despite knowing deep down that selling low and buying high will lead to under-performing investment portfolios and making financial losses, investors do it anyway.”

We are biding our time currently and await an opportune moment to advise our clients when to buy!