Rachel Blythe examines post-Brexit investment anxieties and the impacts on property funds.
Investors pulled more money out of funds in June than they did at the height of the financial crisis. Around £3.5 billion piled out in one month, compared to the mere £561 million which was withdrawn in January 2008.
According to the latest figures from The Investment Association, 37p in every £100 was pulled out of funds around the time of Brexit, with property funds being hit the hardest.
Fears that commercial property prices could crash in the wake of Brexit has led some property funds to suspend withdrawals. Seven property funds, including those managed by asset managers Aberdeen, M&G and Standard Life, suspended their funds after investors rushed for the exit following the UK’s vote to leave the EU.
Many others opted to put hefty charges in place to deter investors from heading for the door. The mark downs reflect the price adjustment for quick fire sales, sales costs and a reduction in the “fair value” of the underlying properties.
Open-ended funds have experienced issues due to the illiquid nature of the property they hold. Property transactions tend to be infrequent and determining a fair price for a property can be difficult. Therefore, property funds hold a cash buffer to satisfy sales without the need to dispose of their properties. However, a large influx of sales has led to the need to dispose of properties in order to satisfy those sales and return the cash buffer to a level they are happy with.
The decision to suspend the funds should afford their managers time to find suitable buyers for their properties. If forced to sell more quickly, there is a risk they would be required to accept less than fair value, which would negatively impact remaining investors in these funds.
Many funds in the sector have shifted to weekly valuations in order to keep pace with market changes, and many property funds have recovered their losses following the initial knee-jerk reaction.