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Categorized | Financial, Property

Standard Life to reopen property fund


Posted on September 26, 2016

From left, the Willis tower, the Shard tower, and 20 Fenchurch Street, also known as the 'Walkie-Talkie', are seen from the top of the Swiss Re building, also known as the 'Gherkin', in London, Photographer: Jason Alden/Bloomberg©Bloomberg

Standard Life Investments will allow investors to pull money from its £2.5bn property fund next month, reversing the Scottish investment group’s controversial decision in July to suspend withdrawals in an attempt to prevent a run on the fund.

The Edinburgh-based fund house, which suspended withdrawals as concerns mounted about UK property valuations after Britain’s vote to leave the EU, said the decision to reopen the fund reflected the fact that the “commercial real estate market has stabilised”.

    Standard Life will permit investors to sell out of the UK’s third largest property fund from October 17, according to a statement issued by the company on Monday.

    Standard Life’s move to block investors from removing their money triggered a domino effect across the industry, prompting seven other fund companies, including M&G and Aviva Investors, to suspend withdrawals from property funds that also offered daily liquidity.

    Four other companies have already lifted the suspension of withdrawals or announced their intention to, including Aberdeen, Henderson, Canada Life and Columbia Threadneedle.

    Investors remain unable to pull their money from M&G’s £4bn property fund — the UK’s largest property fund — and Aviva Investors’ £1.5bn real estate product. Aviva said last month that investors were unlikely to be able to get their money back until 2017.

    The property fund suspensions have called into question the suitability of offering investors funds that invest in highly illiquid assets such as real estate, but promise to provide them with daily liquidity through open-ended structures.

    The Financial Conduct Authority said in July it would examine the suitability of these structures as part of its assessment of the impact of the June Brexit vote on the asset management industry. The UK regulator is holding discussions with the industry, via the Association of Real Estate Funds, on how to handle future mass withdrawals.

    David Paine, head of real estate at Standard Life Investments, said: “We expect that the industry and the regulator will wish to review how open-ended funds have responded to the challenges of recent events.

    “If there is to be a formal review, it would make sense for this to happen only once all funds have reopened, and market value adjustments and valuation caveats have been removed. This would provide a sound basis on which to assess managers’ actions and the results for investors.

    “We will contribute to any potential review since it is sensible one should be undertaken, in doing so we would encourage the industry to seek to maintain choice for investors.”

    Brexit: the big questions answered

    What impact is Brexit having on the economy, house prices, markets and politics?

    Rapid sales of buildings by some funds, notably Aberdeen’s, immediately after the referendum triggered sales at discounts as high as 15 per cent to their asking prices.

    But across the market, property prices have not so far undergone the steep plunge some investors had feared.

    Average commercial property prices dropped about 5 per cent between the Brexit vote and the end of August, while levels of transactions remained low, according to Walter Boettcher, director of research at the property agency Colliers.

    “A moderate cyclical cooling was already under way in the UK and it is truly remarkable that the referendum has not had a greater impact so far,” he said.

    Laith Khalaf, senior analyst at Hargreaves Lansdown, the fund supermarket, warned that many of the funds that have reopened to withdrawals are holding higher levels of cash to boost their ability to provide daily liquidity, potentially dragging down returns.

    He added: “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.

    “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.”