Update: SJP latest to suspend property funds
Difficult to value assets
SJP, Columbia Threadneedle, BMO Global Asset Management, LGIM, ASI, Kames Capital and Janus Henderson have all suspended their open-ended UK property vehicles due to valuation concerns amid the ongoing pandemic-driven market sell-off.
St. James's Place has confirmed the suspensions of the £1bn AUM Property unit trust, as well as the £200m AUM Property Life and £1.2bn AUM Property Pension funds.
In a statement SJP said that in line with the view with other fund valuers, the firm's counterpart CBRE are "currently unable to accurately or fairly value the properties" within the funds, which must therefore be gated.
They added: "The inability to accurately price property funds is a challenge for the entire property investment sector at present, rather than St. James's Place funds in isolation.
"A number of other commercial property funds have also suspended in recent days and this decision has been taken in our clients' best interests."
It is understood that the decision is not related to volatility, liquidity or cashflow constraints, but solely as a result of CBRE's valuation concerns.
Columbia Threadneedle
Columbia Threadneedle has confirmed that from 12pm today (18 March) it is suspending dealing in the £1.2bn AUM Threadneedle UK Property Authorised Investment Fund (Threadneedle PAIF) and its feeder fund the Threadneedle UK Property Authorised trust.
The firm said the decision had been made after discussions with the funds' depositary, Citibank Europe, UK Branch, and the FCA has been notified.
In a statement, Columbia Threadneedle confirmed that the decision was also taken as a result of its independent property valuer CBRE's "market uncertainty clause" which means it is unable to provide an accurate valuation of the PAIF's assets in the current exceptional market environment.
Manager of the Threadneedle PAIF Gerry Frewin added: "Our objective is to protect the interests of investors in the fund, by always ensuring the fair treatment of all investors, whether they are transacting now or investing for the longer-term.
"While we appreciate this may cause some inconvenience, our decision to suspend dealing will prevent any investors being disadvantaged as a result of those redeeming from the fund or investing new money into the fund at an inaccurate price.
"Consistent with FCA guidance, we believe this is an appropriate measure to take to manage the fund during this period of exceptional uncertainty. We thank our investors for their patience and will continue to provide updates to keep them informed."
Columbia Threadneedle said it was monitoring the situation closely and will formally review the decision every 28 days with its depositary.
BMO GAM
BMO GAM has suspended dealing in its UK Property Fund, Property Growth & Income and their feeder funds following "material uncertainty" being declared by its standing independent valuers in relation to its underlying assets.
The firm said in a statement that the suspension is "consistent with the FCA's rules under COLL 7.2 and its Policy Statement 19/24", which require that funds should suspend trading of units if material uncertainty is applied to more than 20% of their illiquid assets.
A spokesperson said: "The decision to suspend dealing in the funds…is designed to protect their investor base by restricting trades in units where uncertainty over the valuation basis could result in potential unfair treatment of investors.
"The suspension is not related to any liquidity event concerning either fund. We do not know at this point when dealing will resume, but we will review the continuation of the suspension on an ongoing basis."
LGIM
According to their website, Legal & General have suspended the Legal & General UK Property fund and its feeder fund.
They noted the fund's independent valuers, Knight Frank LLP, has introduced a material valuation uncertainty clause, which means that as the firm "cannot be confident about the valuation of properties, in the interests of customers and in the light of our regulatory responsibilities [they] have taken the decision to suspend the Funds".
"This uncertainty is due to the unprecedented set of circumstance caused by the COVID-19 virus impacting market activity across all sectors."
The update also sought to reassure investors that the fund is strategically well-placed "for the long-term UK property market outlook".
"The property portfolio is well diversified across sectors and geography, with assets in locations we believe to be strong and below benchmark vacancy rates. From a sector position the portfolio is overweight to industrial and alternatives which we believe to have better long term dynamics and underweight to the retail sector, which is currently the weakest part of the market.
"At present we have high levels of liquidity with 24% held in cash and 2% in Real Estate Investment Trusts, which should help us navigate the market during this declared period of valuation uncertainty."
Aberdeen Standard Investments
ASI also confirmed its UK property vehicles - the £1.7bn AUM UK Real Estate and £1.1bn Aberdeen UK Property funds - are suspended due to valuation concerns.
An ASI spokesperson confirmed that UK property fund industry valuers' "material uncertainty" had forced the firm to suspend both funds, as well as their feeder vehicles.
They said trading in the UK property market "is being severely impacted" by the fallout of the coronavirus pandemic and as a result it is "not currently possible to provide accurate and reliable valuations for certain assets".
ASI is 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 explained.
They added: "This action reflects the exceptional circumstances in global markets, including the UK property market as COVID-19 spreads, and the need to protect client interests by suspending trading when there is material uncertainty regarding how the assets should be valued.
"We will aim to lift the suspension as soon as confidence returns to the market and there is more certainty regarding asset valuations, taking into account the best interests of customers and investors."
Later in the day ASI confirmed that it would also be suspending its Global Real Estate fund due to similar valuation concerns. However the firm said the valuation concern "specifically applies to the fund's European assets but this remains a rapidly evolving situation".
ASI added: "Therefore to protect the interests of customers and investors, we have additionally suspended dealing in the ASI Global Real Estate fund."
Aviva Investors
In a statement, an Aviva Investors spokesperson confirmed that investors had been informed that the fund had been suspended with immediate effect amid "challenging market circumstances, which are impacting the wider investment markets".
They added: "The independent valuer of the Aviva Investors UK Property Fund has expressed material uncertainty over their valuation of scheme property."
The spokesperson stressed that "there is sufficient liquidity" in the fund, but the firm had "acted to safeguard the interests of all our investors".
They added: "We will look to lift the suspension as soon as it is appropriate to do so."
Janus Henderson
Janus Henderson's £2bn UK Property PAIF has also been suspended as a result of "market uncertainty".
According to its website, despite a cash position the fund has maintained to meet a "reasonable" level of redemptions, the "significant market uncertainty" caused by the coronavirus pandemic has led to valuer CBRE declaring "material uncertainty of valuations" in relation to all direct property assets owned by the fund.
Record £2.2bn pulled from UK property funds in 2019
As such, Janus Henderson has suspended dealing in both the fund and its feeder, with all requests received since noon on 16 March to be rejected.
A Janus Henderson spokesperson told Investment Week the suspension was "to safeguard the interests of our investors".
The spokesperson added: "Reviewing this material uncertainty in light of the FCA's incoming regulations on illiquid assets and open-ended funds, which become effective in September 2020, we believe we need to protect the interests of all investors by suspending dealing in the fund and the feeder."
With these recent updates, along with M&G's late 2019 suspension, almost £5bn of assets are now locked in suspended property funds, with "all open-ended property funds likely to suspend", according to Ryan Hughes, head of active portfolios at AJ Bell.
He added: "The suspension of the Kames Property Income fund has been swiftly followed by the Janus Henderson UK Property fund also suspending on the basis of material uncertainty over the valuation of UK commercial property.
"With independent valuers finding it impossible to accurately value property given the major economic uncertainty, there is little choice but to suspend dealing.
"With two of the largest independent valuers saying they cannot accurately determine the value of property, it is almost certain that all open-ended property funds will now have to suspend dealing.
"Investors will understandably find these closures distressing at such an uncertain time in markets. However, there is nothing they can do now but wait it out and hope that the suspensions do not drag on for too long."
Update: M&G Property Portfolio suspension to continue
The £501m Kames Property Income fund and its feeder funds have been forced to suspend as a result of current "turbulent market conditions" making it impossible to accurately value property holdings, Investment Week has learned.
In a statement to investors Kames Capital said the Property Income fund's standing independent valuer CBRE had made the judgement that it could not accurately price the holdings and, in accordance with COLL rules, it had made the recommendation to close.
From 12pm yesterday (16 March) Kames, which has made the Financial Conduct Authority aware of the situation, began blocking any instructions to purchase, sell or switch shares or units in the funds under the management of Richard Peacock and Karen Fox.
Kames told investors: "The challenges in accurately pricing properties is an issue for the entire property investment sector. This is due to a number of specific events that have combined to increase the level of uncertainty in stock markets, which in turn has led to periods of significant selling as we have seen in recent weeks.
"Chief among these events is the ongoing coronavirus crisis, which I know is a real concern for all of us. At the same time, we have had to contend with a sharply lower oil price as well as the impact of the ongoing Brexit negotiations. These issues are affecting all areas of the stock market, including property investing."
As in previously seen fund suspensions, the fund manager told investors it will review the suspension every 28 days.
UK property funds reassure investors after M&G suspension
Commenting on the suspension further, Kames said that a "continued market volatility and uncertainly for property funds" since the 2016 Brexit referendum which has been exacerbated by the coronavirus outbreak "makes it difficult to provide a true value for the funds underlying assets".
It added: "These issues are affecting all areas of the investment market including equities, fixed income and property investing.
"During the suspension we will continue to provide investors with regular updates on developments."
Ryan Hughes, head of active portfolios at AJ Bell, said Kames' decision "highlights the problem of shoe-horning an illiquid asset class into a daily dealing structure".
He said: "At the end of February the fund was running with cash of around 11% but events have moved quickly in recent days making it difficult for independent valuers to make accurate valuations of the underlying properties.
"In line with FCA rules, this uncertainty over what the underlying assets are worth makes suspension inevitable in order to protect existing investors in the fund. It's also in line with our comments last year when we suggested rule changes would make suspensions more likely."
Hughes added that, given M&G Property Portfolio has been suspended since December last year, it "raises serious questions about whether we will see a chain-reaction effect and see other property funds suspending".
"This further reinforces the need for the FCA to make material changes to the daily pricing structure of property funds given the challenges that exist in the market when major uncertainty strikes," he warned.
Adrian Lowcock, head of personal investing at investment platform Willis Owen, said open-ended property funds seem to be suspending "more and more frequently".
"First, it was the Global Financial Crisis, then the EU referendum, general election and this time the black swan of coronavirus," he said.
"While this most recent crisis has hit almost every asset class and caused a sell-off in markets, it has hit property funds differently. This time it is the issue of valuing illiquid assets accurately, market volatility so high and economic outlook unclear, it makes it hard to value unlisted assets. This is a reminder to investors that the open-ended structure is increasingly unsuitable for illiquid assets."
He added: "Investment trusts are likely to face similar issues on valuations, but because they are listed investors can make their own valuation of the businesses and decide whether to sell or buy. Property funds are no longer functioning well in a world that wants daily dealing."
CEO of Hearthstone Investments Cedric Bucher said the firm did not see valuation concerns for its TM home investor fund due to the relatively high liquidity of the residential property market compared to commercial assets.
He explained: "There is not valuation uncertainty due to the residential property market being more liquid, even currently, and due to average unit size of a residential property being so much smaller (£250k for our fund vs £25m in mainstream commercial property funds)
"Also, residential property does not have specific challenges as such those faced by retail or leisure commercial property.
"Finally, as in most crisis the government and treasury support homeowners (as per the up to 3 month mortgage holidays) and renters (as indicated yesterday by the Chancellor following a question from the shadow chancellor)."
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