According to The Telegraph, Britain’s central bank is working with the Financial Conduct Authority (FCA) to draw up a plan to boost the UK’s commercial property sector after five of the largest property authorised investment funds (Paifs), among others, suspended trading during the first week in July.
Standard Life Investment, Aviva and M&G all ceased trading on their respective funds due to an increase in redemption requests triggering share sales in property and asset management companies.
New measures
As a result, the Bank is now considering measures such as limiting liquidity to match the assets. This would require investors to give a notice period of between 30 days to six months in order to redeem.
In addition, property funds may also have to increase their capital buffers by holding more property-related shares and bonds that are easier to sell off in times of volatility than offices or retail parks.
It comes as Aberdeen Asset Management and LGIM both imposed value cuts to their funds last week to put off investors from pulling their money out, although, at the time Aberdeen said the levy was imposed “solely to reflect the need to dispose of properties quickly in order to provide liquidity”.
The Bank of England is looking at introducing a similar industry-wide practice known as swing pricing, whereby investors who sell large holdings have to accept a lower price.
Speaking about the property fund volatility last week, FCA chief executive Andrew Bailey said that the ability to suspend a fund is built into their structure, adding that the regulator was in “close contact” with the funds in question and that the situation would continue to be reviewed.
