ft.com july 55 Jul 2016 14:47
A second UK real estate fund halted redemptions and shares exposed to British commercial property fell sharply on Tuesday amid heightened fears over the impact of the Brexit vote.
Aviva Investments on Tuesday said it had prevented retail investors from selling out of its £1.8bn UK Property Trust since Monday afternoon.
The announcement comes one day after Standard Life “gated” its £2.9bn UK property fund, because it was faced with large withdrawal demands after the referendum and was running out of liquid holdings to return their cash.
The two announcements sparked concern that other funds would follow suit, and that their forced selling of buildings could act as the catalyst for a steep drop in commercial property prices, as happened during the 2008 financial crisis.
Legal & General dropped 5.6 per cent by midday, while Aberdeen Asset Management shares were down 6.1 per cent and Standard Life lost 3.5 per cent. Land Securities, the UK’s largest property company, dropped 4.3 per cent.
The news put renewed pressure on sterling, which hit a new post-referendum low, falling 1.8 per cent to $1.3113, passing the $1.3118 nadir it reached on June 27.
Aviva said that “extraordinary market circumstances... have resulted in a lack of immediate liquidity in the Aviva Investors Property Trust. “Suspension of dealing will give Aviva Investors greater control in managing cashflows and conducting orderly asset sales in order to meet our obligations to investors.”
Mike Prew, analyst at Jefferies, the investment bank, said it was “inevitable” that further funds would halt redemptions in a “vicious circle of value destruction” that would also affect listed real estate investment trusts.
A fund manager who monitors flows across the market said that outflows since the vote had been driven by discretionary wealth managers moving large chunks of investors’ money into other asset classes. The outflows moderated to low levels from Friday last week, but “if investors all run for the door because of Standard Life then they will cause a self-fulfilling prophecy of forcing funds to suspend,” said the fund manager, who asked not to be named.
However, Legal & General, which runs a £2.5bn property fund open to retail investors, said it had no plans to gate redemptions. “The fund retains over 20 per cent of its net asset value in liquid assets, the majority of which is held in cash,” it said.
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