The Association of Real Estate Funds will commission an independent report into this summer’s open property funds crisis.
The structure of open-ended retail funds has come under fire for allowing daily trading on illiquid assets and closing during times of crisis.
Nearly all of the seven property funds that closed following the EU referendum are trading again or expecting to reopen before the end of the year. Henderson’s property PAIF announced its £3.4bn fund would begin trading again on 14 October.
Columbia Threadneedle will re-open its PAIF next week.
However, John Cartwright, chief executive of the Association of Real Estate Funds, said the structure had been perfectly sound: “We are going to be working with our fund members and we will commission an independent report to look at all that happened in the period since June to see what conclusions we might draw. It’s too early to say what those might be.”
But he added: “The suspension provision did what it intended to do – protect the interests of long-term investors. We have not seen a dramatic downward movement in the market.”
Fiona Rowley, manager of M&G’s UK property fund, said the £4bn fund was targeting a liquidity level of 15%, which it could achieve in the next month with its pipeline of £200m of assets under offer.
However, she stressed this was not the only condition they were considering, adding that broader market conditions will also influence re-opening.
David Paine, head of real estate at Standard Life Investments, said his team was expecting to lift the suspension before the end of the year. Unlike M&G, it has not set a liquidity threshold.
Instead, he said it will be “looking to assess the level of redemptions” to determine when it will be in a position to sustain trading.
Aviva announced in August that its property trust will likely stay closed for another six to eight months.
Why suspend an open-ended fund?
David Paine, Standard Life Investments: The UK real estate fund was in a position where in a very short period of time it would no longer be able to meet redemptions. There was no liquidity.
Designed into these structures was a pressure valve. The reason for that pressure valve in periods of extreme market conditions is to enable managers to mitigate having to go through a fire sale process. Fire sales will lead to an oversized discount, up to 25%.
By suspending we have been able to achieve and realise assets of around 5-6% discount to pre-Brexit values. That level of discount is consistent with the underlying reduction of value in the marketplace generally.
Property funds: current status
Standard Life Investments UK Real Estate Fund and Feeder Funds
Size, July 2016: £2.5bn
Status: Suspended, possible reopening in Q4
Fair value adjustment: 1% discount
Henderson UK Property PAIF and Feeder Fund
Size, August 2016: £3.4bn
Status: Suspended, suspension will be lifted on 14 October
Fair value adjustment: 1.96% discount
M&G Property Portfolio
Size, August 2016: £4bn
Status: Suspended, could open next month
Fair value adjustment: £75m discount
Aviva Investors Property Trust
Size, August 2016: £1.5bn
Status: Suspended, could last another six to eight months
Fair value adjustment: 0%
Canada Life Canlife UK Property
Size, July 2016: £450m
Status: Open
Fair value adjustment: 7% discount
Aberdeen Asset Management UK Property Fund
Size, June 2016: £3bn
Status: Open
Fair value adjustment: 1.27% discount
Threadneedle UK PAIF and Feeder Fund
Size, August 2016: £1.1bn
Status: Suspended, to be lifted on 26 September
Fair value adjustment: 0%
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