Managers in the IA UK Direct Property sector have boosted their cash holdings substantially since the beginning of the year amid mixed investor sentiment towards the sector related to political uncertainty, and regulators keeping an eye on liquidity levels.
Average cash holdings as a percentage of portfolios in the IA UK Direct Property sector have more than doubled from 10% in January to 20.5% as of 30 June, FE data shows.
The cash positions have been steadily growing since the days after the 2016 EU referendum, when several funds in the sector were forced to suspend withdrawals as investors raced for the exit. In July of that year, the sector held an average 8.2%
Much of the pressure to keep elevated cash levels is coming from the Financial Conduct Authority (FCA), which has made it clear it is monitoring liquidity levels in property funds and other retail funds holding illiquid assets, despite supporting gating as a function to protect investors.
A Janus Henderson Investors spokesperson said the firm is among a number in the sector that are "in contact with the FCA on a regular basis with regards to flows and overall fund liquidity".
They added: "We maintain our weighting in cash to allow the fund to meet net investor outflows and continue to search for suitable investment opportunities, while awaiting some clarity around Brexit."
Similarly, a spokesperson from Aberdeen Standard Investments (ASI), which has cash weightings of 18.9% and 23% in the Aberdeen UK Property and Standard Life Investments UK Real Estate funds respectively, said both funds are "positioned defensively and continue to run with elevated liquidity positions given the current period of political and economic uncertainty".
They added the firm is currently monitoring "both current and expected future cash positions on a daily basis, taking into account: transactional activity, known and imminent redemptions and subscriptions as well as input from our distribution team on general investor sentiment towards the asset class."
In addition, Columbia Threadneedle raised its cash levels from 11% in 2018 before "Brexit negotiations intensified" - at which point it pushed the fund to "the upper end of its liquidity corridor" - to 13.2%, according to a spokesperson.
They said: "While this plays an important role in the context of meeting potential redemptions, as markets stabilise it will provide a valuable buying opportunity as well."
CEO of Hearthstone Investments Cedric Bucher explained the firm's TM home investment fund is currently at its upper limits for cash holdings at 15% "while we find out who will be the new Prime Minister and Brexit is resolved".
Although this is low relative to some in the IA UK Direct Property sector, as the firm focuses on residential property its liquidity needs are not as strenuous, according to Bucher.
However, Richard Peacock, manager of the Kames Property Income fund, said "encouragingly, sales have been taking place to increase liquidity levels across the PAIF peer group", with his fund selling 17 buildings in 2019 to raise £60m, amounting to 21% liquidity.
He added: "This reflects the healthy level of investment demand for smaller assets and gives us confidence that other managers will be able to raise liquidity levels quickly if required."
Investor sentiment to UK property funds has been weak in 2019. The IA UK Direct Property sector, which was created in September 2018 when the IA Property sector was split in two - the other new sector being IA Property Other - has seen net outflows every month since December 2018 amounting to a total of £938m, according to IA data.