A new wave of UK property funds including vehicles managed by BlackRock and Schroders has been forced to suspend trading, pushing the total amount locked in such funds as a result of the coronavirus outbreak to more than £20bn.
Trading was halted after property companies such as Knight Frank, CBRE and JLL said they could not accurately value real estate in the UK, with the pandemic having forced the closure of shops, bars and offices, and derailed almost all deals for commercial buildings.
The suspension of the £3.4bn BlackRock UK Property and the £2.4bn Schroder UK Real Estate funds — which have quarterly or monthly redemptions and are typically held by institutional investors — follows the gating of more frequently traded funds in mid-March, which have a greater proportion of retail investors.
Five institutional funds managed by Royal London and Legal & General, including one with assets of £3.4bn, also featured in the latest round of suspensions.
“The basic issue is the same: there’s fundamental uncertainty over the net asset value,” said independent property consultant John Forbes. “That’s compounded if the rent income doesn’t arrive. That potentially makes the valuation more challenging.”
On March 31, the valuation date for both monthly and quarterly traded funds, valuers deemed there was “material uncertainty” as to the value of the underlying assets in the funds, which prompted the suspensions.
Material uncertainty “is still going to be here on June 30. I’m incredibly doubtful that we’ll be through this on September 30. They can’t resume trading until then,” said Mr Forbes.
In the meantime, funds can continue to charge fees to clients. “They still need to manage the funds: arguably they need to do even more,” said Mr Forbes.
Schroders said its property fund was “robust” and had a low allocation to the retail sector at 14 per cent of its net asset value. Legal & General said its fund had “appropriate levels of cash liquidity”, adding that its assets were diversified across geography and sectors.
Unlike retail investors in daily traded funds, institutions holding monthly or quarterly traded funds had access to a secondary market where they could continue to trade despite the suspensions.
Daily traded property funds have been hit by significant outflows over the past year, creating liquidity risk challenges for asset managers.
In December, M&G suspended its £2.3bn fund after it was unable to sell properties to keep pace with a surge of investor redemptions. The M&G fund remains suspended. Including this fund, total investor assets trapped in UK property funds stand at more than £22bn.
The last time property funds were forced to gate en masse was following the 2016 Brexit vote. This sparked questions about whether open-ended funds, unlisted funds that grow or shrink as investors move cash in or out, are compatible with assets such as property that can take months to sell.
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