Aviva fund redemption delay irks rivals

Shrewd, foolish, disruptive or confrontational?

Last week’s announcement by Aviva that it will bar redemptions from its £1.5bn property trust for at least six months riled its rivals. They have held talks with the fund industry’s representative body to facilitate a co-ordinated reopening of funds.

But will Aviva really hold on that long, or could it open earlier?

“There is always a bit of smoke and mirrors and if [Aviva] ends up selling enough at prices it thinks are acceptable, I am sure it will reopen earlier,” said one manager.

Many of the managers of the four major open-ended funds – Colombia Threadneedle, M&G Investments, Standard Life and Henderson – aim to reopen within around three months.

By setting out a longer timescale, Aviva is indicating that it is not a forced seller and will hope to get a better price for its assets, but on the assumption that the market strengthens.

Aviva’s stance is in stark contrast to that of Aberdeen Asset Management, which was the most aggressive seller of all the open-ended fund managers following the result of the EU referendum. It disposed of more than £400m of assets within a couple of weeks to ensure it could stay open.

Russell Chaplin, chief investment officer at Aberdeen, said: “We have seen early numbers showing the market dropped by 3.3% in July, but if by the end of September there is a 10% drop compared with the end of June, then you may as well have sold out at the beginning and gained liquidity. Selling out early could look quite canny.”

The majority of Aviva’s competitors, both open and closed, favour a quick reopening to avoid damaging the reputation of the funds, which are already under scrutiny from the Financial Conduct Authority owing to their illiquidity.

“These are daily, liquid, open-ended funds and once you suspend then you are obviously not a liquid open-ended fund any more. The aim is to offer liquidity at a price that you think is reasonable,” Chaplin said.

Aviva says it will reopen “as soon as the liquidity position has reached an appropriate level”, but given that “property sales may be more difficult to execute in the current environment due to market uncertainty”, the fund will reopen at least six to eight months on from the date it suspended redemptions on 5 July.

Aviva’s indication that it will work to a later timescale may mean other funds take the brunt of redemption requests from investors with stakes in a number of funds.

There is no regulation regarding when funds have to reopen. Power sits in the hands of the managers, who decide what is in the best interests of all investors, both those that want to stay and those that want to leave.

One rival fund manager said: “It is extraordinary to say you are not opening for so long. You would have to have a lot of redemptions to not be able to pay them back before then.

“You can sell assets in this market. And it is not like [Aviva has] a terrible portfolio.”

As of 31 July, 4.8% of the Aviva fund’s holdings were in cash and equivalents and 0.1% in UK equities. In the year to the end of June, the fund provided a -1.7% return.

The fund, managed by Mike Luscombe and Andrew Hook, is not allowed to accept inflows to the fund while it is closed to redemptions, so the sale of some of its largest assets is on the horizon.

What Aviva says

“We will… reopen the trust as soon as the liquidity position has reached an appropriate level.

“In recent years we have taken measures to reposition the trust and upgrade the quality of the overall portfolio. There is a significant pipeline of asset management initiatives that we expect will deliver further performance.

“The planned sales to raise liquidity are in accordance with the trust’s strategy and are focused on assets where we have completed asset management initiatives; properties that are considered to be at the end of their growth cycle; and those where there are opportunities to sell at premium prices.”