SLI suspends UK Real Estate Fund, property shares hit

Added 4th July 2016

Financial services giant Standard Life Investments (SLI) has suspended all trading in its UK Real Estate Fund following an increase in redemption requests, triggering share sales in property and asset management companies.

SLI suspends UK Real Estate Fund, property shares hit

The suspension of the flagship £2.9bn ($3.9bn, €3.5bn) property fund was effective from midday on 4 July and will be formally reviewed at least every 28 days. According to SLI, the suspension will end “as soon as practicable”.

A spokesperson for the company said that while the fund had been managing redemptions using its cash position, the increase in requests following the UK’s vote to leave the EU meant they could no longer be met without selling assets.

In a statement, SLI said: “The suspension was requested to protect the interests of all investors in the fund and to avoid compromising investment returns from the range, mix and quality of assets within the portfolio.”  

“The selling process for real estate can be lengthy as the fund manager needs to offer assets for sale, find prospective buyers, secure the best price and complete the legal transaction. Unless this selling process is controlled, there is a risk that the fund manager will not achieve the best deal for investors in the fund, including those who intend to remain invested over the medium to long-term,” SLI added.

Property funds on watch

Other asset managers with large UK property funds were weighing up their responses on Tuesday to the spike in redemptions.

Spokespeople for M&G Investments, which has the largest UK property fund at £4.58bn, and Henderson Global Investors said they are ‘monitoring the situation.’

M&G has already announced that it has applied a fair value adjustment (FVA) equivalent to a 4.5% reduction of the net asset value to the M&G Property Portfolio on 1 July.

A spokesperson for Legal & General Investment Management confirmed its property fund has not halted redemptions.

“Legal and General's UK Property Fund remains well positioned in terms of liquidity and asset management initiatives,” she said.

“The fund retains over 20% of its NAV in liquid assets – the majority of which is held in cash. In addition to this, the fund has a pipeline of sales initiatives which will increase its cash position if needed and has a well-diversified investor base. The UK Property fund is managed by a very experienced team and continues to receive strong support from rating agencies and advisers alike.” 

Spokespeople for Columbia Threadneedle and Blackrock, which both have significant UK property funds, did not respond to a request for comment.      

Sentiment weak

The announcement from SLI triggered a selloff in shares in fund managers and property companies on Tuesday morning.

By the end of the morning session Legal & General shares had dropped by around 5.75%, while Aberdeen Asset Management was down  5.2% and Standard Life lost 3.2%.

Land Securities, the UK’s largest property company, was one of the biggest fallers on the FTSE 100 on Tuesday morning, dropping 4.3%.

According to Nathan Sweeney, senior investment manager, Architas, sentiment had softened towards selected UK property assets over the last few days as the reality of Brexit has set in.

But, he said: “While the return profile of property will likely be lower with rental increases slowing and demand likely to fall in some sectors, investors should be wary of discounting property completely and should carefully consider why they chose to hold it within their portfolios. It is still a lower volatility, potentially attractive income play in a low growth, low yield environment."

For Adrian Lowcock, head of investing at Axa Wealth, the SLI suspension, “brings back to focus the issues with investing in open-ended commercial property funds. 

“During the financial crisis many investors were stuck in funds which had closed to redemptions as liquidity dried up. However, while there is a short term issue with the asset class, I do not think this will lead to long term closure of property funds as it is driven by asset allocation decisions not by investors needing access to money.”

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About Author

Geoff Candy

Group digital editor

Geoff Candy joined Portfolio Adviser as News Editor in May 2014. He has been a financial journalist and broadcaster since 2005 and, in that time has worked in both South Africa and the Netherlands, covering everything from high street retailers and construction companies to mining and insurance.

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