UK property funds have started to re-open after six months of being suspended, with one of the biggest funds in the sector announcing it will allow investors to buy and sell again from next week.
Columbia Threadneedle announced that the £1 billion Threadneedle UK Property Investment Fund (and its feeder fund) will resume dealing on September 17, having suspended on March 18 amid the height of the Covid-19 panic and stock market volatility. At the time, the fund’s independent property valuer, CBRE, said it was unable to properly value the fund’s assets – but on Wednesday this was lifted, allowing the fund to re-open.
Gerry Frewin, fund manager for the Threadneedle fund, said: “We appreciate that suspending dealings in the Fund may have caused some inconvenience for our clients, however the decision to suspend dealing meant that no unitholders would be disadvantaged and ensured the fair treatment of all investors at a time of exceptional market uncertainty."
Wealth manager St James’s Place has also lifted the suspension across its property funds. Legal & General said it plans to open the property fund again on October 13. The trigger for these re-openings was the Royal Institution for Chartered Surveyors (RICS) lifting its “material uncertainty clause” for the sector as a whole.
Adrian Lowcock, head of personal investing at Willis Owen, says the decision by RICS is an important first step to allow property funds to open again. But he urged caution, not least because tense Brexit negotiations and rising Covid-19 infections means that the decision to re-open is not straightforward. ““Many funds are not sitting on high cash balances at the moment, and they will be desperate to avoid a scenario where they have to close again if redemptions are too high … Therefore, we don't think the situation has been resolved for investors as yet, and it could take weeks, if not months, for funds to reopen.”
180 Day Rule?
The Threadneedle fund was one of many to suspend dealings in March, while one of the largest in the sector, M&G Property, gated in December 2019, before the coronavirus struck, shutting offices, restaurants and shops. In July, we looked in depth at the year-to-date returns of these open-ended funds and their yields. At the time, only BMO Property Growth & Income had re-opened to investors, and that fund largely invests in property company shares rather than less liquid assets. But that was seen as a cautious first step for the sector.
In August 2020, the Financial Conduct Authority proposed that investors could have to give 180 days’ notice to deal in these funds as a way of solving the “liquidity mismatch” inherent in these products: investors want daily pricing and dealing but the nature of commercial property means daily valuations are harder to come by, and buildings cannot be sold as easily as company shares.
“Fund suspensions exist to protect investors in exceptional circumstances. However, the FCA has seen repeated suspensions of these funds over recent years for liquidity reasons, which suggests that there may be wider problems,” the regulator said at the time. The industry and regulator are still discussing the best course of action, with responses expected by November this year and new rules coming in next year.
