The FCA can stop the current property fund malaise turning into a full-blown crisis, says AJ Bell founder and chief executive Andy Bell.
Speaking after the investment platform unveiled its first set of annual results as a public company, Bell told Morningstar that the regulator had a key role to play in co-ordinating a response to stop a domino effect after M&G suspended its £2.5 billion property fund on Wednesday.
The move has raised concerns about a contagion effect among direct property funds and a Woodford-style “rush for exit” among direct property funds. Analysts have since questioned whether open-ended funds are an appropriate way for investors to access commercial property as an asset class.
Bell said there’s a case for the FCA launching a co-ordinated response to allow all funds in the sector to gate – as many did in the wake of the 2016 Brexit vote – to stave off an investor panic and wave of redemptions. “The whole process of gating worked incredibly well in 2016,” Bell said.
But in the wake of the M&G fund suspension, other property fund managers have moved to reassure investors that they are still open for business. An Aberdeen Standard spokesman said its SLI UK Real Estate and Aberdeen UK Property funds held 15.7% and 12.7% of their assets in cash respectively. It added: "We will continue to monitor the situation closely and in particular any impact M&G's decision has on investor sentiment towards the sector."
Bit it is important for investors to keep the Woodford crisis – where the Equity Income fund’s gating triggered a full-blown crisis – and this latest issue separate, said Bell, who thinks direct property funds still have a role to play for retail investors. Closed-end property funds may require an additional level of sophistication from retail investors and could be higher risk, he added.
Bell said investors should be guided by their advisers about what to do next and that “it’s a bit early to see any big rush for the door”. But he did warn that there are risks of “contagion” among the 16 open-ended funds in the sector, especially among those funds with smaller cash holdings. Morningstar has published an investigation into cash holdings among property funds.
“People will be critical of those property funds will too little cash, but there are also funds that are hoarding cash,” Bell said.
The FCA has been criticised by MPs for reacting too slowly to the Woodford crisis, which led to Woodford Investment Management closing down.
First Annual Results
AJ Bell’s (AJB) first set of annual results since it floated revealed a 33% rise in profits to £37.7 million. Assets under management climbed 13% to £52.3 million as the firm saw its customer numbers swell 17% to 232,066.
The firm unveiled a new initiative alongside the results that could see charities receive around £10 million if AJ Bell increases its earnings per share by at least 100% over three years and by at least 150% over five years. If the company misses these targets, Bell has pledged to make up the shortfall himself - the firm's founder was estimated to be worth £360 million in the most recent Sunday Times Rich List.
Nik Lysiuk, Research Analyst, finnCap, notes that no City analyst has a “Buy” recommendation on the stock, which he says is a “symptom of the City’s short-termism”. Shares fell more than 3% after the update to 393p, which Lysiuk puts down to the very high expectations placed on the company. After the results, Liberum Capital reiterated its “Sell” recommendation, but with a target price of 396.5p. AJ Bell’s shares floated at 160p in December 2018.
