Billions of pounds have been locked into UK property funds as the market seizes up.
A string of major funds investing in UK property have been ‘gated’ in the last 24 hours — effectively blocking investors from withdrawing their money.
Kames Property Income, which manages over £500m ($611m) of investor cash, was first to be suspended last night.
Since then Janus Henderson (JHG), Aberdeen Standard (SLA.L), Aviva (AV.L), BMO Global Asset Management, L&G (LGEN.L), and Columbia Threadneedle have all suspended UK property funds. Collectively, the frozen funds manage over £10bn of investor money.
“Markets around the world have experienced huge disruption as Covid-19 spreads and trading in the UK property market is being severely impacted,” a spokesperson for Aberdeen Standard Investments said.
The spokesperson said it is “not currently possible to provide accurate and reliable valuations” for the properties Aviva has invested in.
“We are therefore unable to produce a price for the funds which we can say with any confidence reflects the true value of the assets,” the spokesperson said.
Representatives for the other suspended funds offered similar explanations.
“Given the pace of developments, price discovery isn’t functioning properly in stock markets – with equities lurching all over the place – due to uncertainty over the impact on earnings,” said Jason Hollands, a managing director at Tilney Investment Management.
“It isn’t therefore that surprising that the independent valuers used by property funds are saying they can’t arrive at accurate valuations for properties in the current climate.”
Stocks, currencies, and bonds have all sold-off in recent days as investors rush to hoard cash, amid fears about the economic impact of Covid-19. Deutsche Bank said on Wednesday it now expects a “severe” global recession in 2020 with quarterly falls in GDP on a scale not seen since the Second World War.
Hollands said it is “possibly all such [UK property] funds” could be suspended in the coming days given market conditions.
Fitch Ratings said separately it expects more funds to be suspended.
“UK open-end property funds have a history of imposing extraordinary liquidity management tools such as suspending redemptions,” analysts at the credit rating agency said. “Many funds suspended redemptions in the wake of the UK's referendum on Brexit in 2016. All except one fund imposed extraordinary liquidity management measures.”
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