Portfolio Adviser • October 2016 • Post-Referendum Property Fund Freeze Thaws

. M&G and Aviva are the last of the UK’s leading property funds yet to lift trading restrictions in wake of Brexit vote

. Turmoil is largely over but questions remain on the open-ended structure of property funds

What’s the story? After trading suspensions and value adjustments for most of the UK’s leading property funds in the wake of the EU referendum vote, the crisis largely abated during September.

On 26 September, Standard Life Investments announced it would reopen its suspended UK Real Estate Fund and associated feeder fund from noon on Monday 17 October.

That same day, Columbia Threadneedle Investments lifted the trading suspension on its UK Property Authorised Investment Fund (Paif) and its feeder fund.

This followed an announcement from Henderson Global Investors that it would reopen its UK Paif and feeder fund for trading on 14 October.

At time of writing, Aviva Investors and M&G Investment had yet to confirm a date for the lifting of restrictions on their property offerings.

PA viewpoint Property funds, like the UK economy in general, have confounded the doommongers since the initial panic following the Brexit vote.

Whether the funds are out of the woods is far from certain but the consensus among observers is that the turmoil was short lived and the worst is over.

However, questions remain over the suitability of the open-ended structure of these funds for illiquid asset classes.

In addition, while Brexit may not cause these property funds any further trouble, the next macro worry could easily result in a similar raft of suspensions and price adjustments.

What the industry thinks “The UK property fund sector seems to be returning to some semblance of normality, although there are still some big funds out there that have yet to open their gates,” said Laith Khalaf, senior analyst at Hargreaves Lansdown.

“The big freeze that beset property funds over the summer could well recur if the sector sees any more big withdrawals. Investors should make sure they are willing to accept this ongoing risk, and to hold the funds for the long term.

“One nagging concern for investors in the sector, beyond the prospect of future trading suspensions, is the high level of cash these funds now hold to provide daily liquidity for shareholders,” he added.

“This is a perfectly sensible strategy for a manager running an open-ended fund to operate, but in today’s low interest rate environment it will act as a drag on returns, which is yet another drawback for property fund investors to consider.

“All in all, the score card for this type of open-ended property fund has a few ticks and a lot of crosses.”

Tilney Bestinvest managing director Jason Hollands said: “For all the cosmetic similarities, this turmoil over UK property funds was nothing like a post-Lehman moment, where the financial system teetered on the brink and both liquidity and credit dried up.

“Above all, this debacle is a reminder that when investing in illiquid asset classes, a closed-ended investment company structure is more appropriate than an open-ended one.”

He added: “While property investment companies were certainly not immune from the post-referendum turmoil, seeing sharp share price declines and widening of discounts to their net asset values, managers of such vehicles did not have to start disposing of assets to meet redemption requests from panicky investors.”

. The Financial Conduct Authority has said it intends to ban former chief operating officer of Barclays Wealth and Investment Management Andrew Tinney. The regulator said Tinney “should be publicly censured and banned from carrying out any senior management or significant influence functions in any regulated financial service provider”. The FCA’s decision is based on allegations that Tinney destroyed an internal report that was critical of conduct within the bank’s US wealth division back in 2013.

. The FCA will defer capping fund manager charges on its products, according to reports. The FCA has been conducting a review of the UK’s fund management industry since last year and was due to report its findings in the summer, now delayed until late autumn.

. The UK government will consult on changes to the definition of financial advice, so that only a personal recommendation for a product is considered advice. The Financial Advice Market Review has called for the definition of advice to be amended and to allow consumers early access to their pension pot to pay for advice. The final report sets out a total of 28 policy recommendations and brings the definition of advice in line with Mifid rules.

. UK advice firms applying for corporate chartered financial planner status from the Chartered Insurance Institute (CII) face an easier time than their overseas counterparts, according to Ian Simons, marketing director at CII. Simons said greater transparency in the UK made it easier to verify the application criteria of local firms.