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The number of British property funds suspended after the country’s vote to leave the EU more than doubled on Wednesday, leaving over £18 billion ($23 billion) frozen in the biggest seizing up of investment funds since the 2008 financial crisis.
Seven funds have pulled down the shutters after a wave of investors asked for their money back amid speculation about a possible drop in commercial property prices in reaction to the result of the June 23 referendum.
That in turn has raised concerns about the outlook for the broader financial system, given the risk of investors bailing out of other asset classes in a panic and of lenders to the sector such as banks suffering fresh balance sheet stress.
Henderson Global Investors, part of Henderson Group, said on Wednesday it had temporarily suspended trading in its £3.9 billion UK Property PAIF and PAIF feeder funds due to “exceptional liquidity pressures” given uncertainty after the Brexit vote and the other suspensions.
It was followed within the hour by Columbia Threadneedle, part of the Ameriprise Group, which said it had suspended trading in its Threadneedle UK Property Fund.
Canada Life said it had also suspended its Canlife Property and Canlife UK property funds, describing this as a deferral of requests to withdraw investments. “The deferral can be for up to six months, enabling the funds to ensure property values reflect market conditions,” it said in a statement.
Late on Wednesday, Aberdeen Asset Management said withdrawals from its £3.2 billion UK Property Fund which it had received before 11:00 GMT would face a 17 percent dilution levy, and that it would not fulfil later orders. It expected to re-open the fund at 11:00 GMT on Thursday.
They joined rival funds managed by M&G Investments, Aviva Investors and Standard Life Investments which suspended trading on Monday and Tuesday.
BlackRock Inc, the world’s largest asset manager, on Friday told investors that it raised quarterly redemption charges on its £3.3 billion BlackRock UK Property Fund to 5.75 percent, from 2 percent.
“Over half of the property fund sector is now on ice, and will remain so until managers raise enough cash to meet redemptions. To do that they need to sell properties, and as any homeowner knows, that is not a quick or painless procedure,” said Laith Khalaf, senior analyst at fund supermarket Hargreaves Lansdown.
“These funds are therefore likely to be closed for weeks and months rather than simply a matter of days,” he wrote in a note to clients before Aberdeen’s announcement.
Britain’s Financial Ombudsman Service said it had begun to receive calls from retail investors worried about the closures and the potential hit to their savings. “Although the decision to suspend redemptions was expected, the extent of the suspensions by the three funds so far is quite troubling,” a spokeswoman said shortly before Wednesday’s fund announcements.
Keenan Vyas, director in the Real Estate Advisory Group at Duff & Phelps in London, said the consequences could be profound.
“If there continues to be a tremendous amount of redemption pressure in a short period of time this could result in a large number of sales transacting below book value and an eventual overall correction in property asset pricing across the U.K. market,” said Vyas.
Despite concern that the banking system — beset for years by toughening capital constraints and misconduct fines — could face a fresh hit from any write-down in commercial property, analysts were generally sanguine as total exposure was light.
“Banks haven’t really played the asset class in the last five years — it’s mostly been the shadow banking sector,” said analysts at Bernstein in a note.
(REUTERS)
