New Star has suspended dealing in the shares of its International Property Fund in the wake of increased redemptions, which New Star says have come "mainly from a few institutional clients."

The £674 million fund has performed relatively well, but the issue for any open-end fund investing directly in property is that they need to provide liquidity to redeeming shareholders whilst investing in a portfolio that consists of primarily illiquid assets. In that respect, the format seems a poor match for the asset class.

New Star's move should help protect the interests of the fund's shareholders, and is the right thing to do in our view. However, it's another clear sign that investors shouldn't really view their investments in direct property funds as liquid per se and need to take on the board the possibility that their capital will be tied up for potentially indefinite periods when deciding whether to invest.

For New Star, the outflows come at a particularly bad juncture. The firm's assets under management are down sharply amid underperformance by many of its offerings, and it recently was forced to accept a higher interest rate on its outstanding debt. Founder John Duffield has taken steps to try to improve performance by reshuffling the firm's fund management line-up, but it's too soon to say if and when the changes will bear fruit. New Star's shares fell 15.6% to 13.50p in early trading on Wednesday.

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