On 26 September Standard Life Investments announced it will reopen the suspended £2.6bn UK Real Estate Fund and associated feeder fund from 17 October. This followed a similar announcement several days earlier from Henderson Global Investors, which said it will re-open its UK Property PAIF and its feeder fund for trading on 14 October. The same day Columbia Threadneedle Investments said the trading suspension on the Threadneedle UK Property Authorised Investment Fund and its feeder fund was to be lifted from 26 September.
Of the major UK property fund providers only Aviva Investors and M&G Investments are yet to confirm date for the lifting of restrictions on their offerings.
So it seems property funds, like the UK economy in general, have confounded doom-mongers since the initial Brexit induced panic. Whether they are totally out of the woods is far from certain, but most investors would lean towards ‘yes’ at this point if asked whether they believe the worst is over.
Although the turmoil has been remarkably short lived, that does not necessarily mean there are no questions to answer around the suitability of the open-ended structure for property funds. While Brexit may not cause these funds much further trouble, the next major macro worry could easily result in a similar raft of suspensions and price adjustments as investors run for the hills.
“The UK property fund sector appears to be returning to some semblance of normality, though there are still some big funds out there that are yet to open their gates,” said Laith Khalaf, senior analyst at Hargreaves Lansdown. “The big freeze that beset property funds over the summer could well recur if the sector sees more large withdrawals, so investors should make sure they are willing to accept this ongoing risk, and to hold the funds for the long term.”
“One nagging concern for investors in the sector, beyond the prospect of future trading suspensions, is the high level of cash these funds now hold to provide daily liquidity for shareholders,” Khalaf added. “This is a perfectly sensible strategy for a manager running an open-ended fund to operate, but in today’s low interest rate environment it will act as a drag on returns, which is yet another drawback for property fund investors to consider. All in all, the score card for open-ended property funds has a few ticks, and a lot of crosses.”
Tilney Bestinvest managing director Jason Hollands is more adamant on the matter than Khalaf. “For all the cosmetic similarities, in truth this was nothing like a post-Lehman moment where the financial system teetered on the brink and both liquidity and credit dried up,” he said. “Above all this debacle is also a reminder that when investing in illiquid asset classes, a closed end investment company structure is more appropriate than an open ended one.”