Portfolio Adviser - Portfolio Adviser March 2019
UK Property Fund Scrutiny Riles Managers
Jessica Tasman-Jones 2019-03-12 06:50:37
●The worst redemptions since the Brexit vote have put the IA UK Direct Property sector under pressure
● With the Brexit deadline approaching, the FCA is monitoring property funds daily for liquidity
What’s the story? Asset managers are reportedly getting tetchy about scrutiny of the IA UK Direct Property sector in the leadup to Brexit. Managers argue they are better placed to deal with redemptions than in summer 2016, when the UK voted to leave the European Union.
In December, the sector faced outflows of £315.6m, the worst redemptions since July 2016, when a raft of funds gated due to a mass exodus of client money.
The Threadneedle UK Property Authorised Investment and Kames Property Income funds both switched to bid pricing in December, essentially wiping out returns for the year for investors exiting the funds.
However, the products attracted £10.8m and £2.6m, respectively, in a month during which all other funds, bar MGTS St Johns High Income Property, faced outflows ranging all the way up to £92.6m for the Janus Henderson UK Property Paif.
Last month, managers of the Janus Henderson fund announced they would adjust pricing on the £2.8bn UK Property Paif and UK Property Paif Feeder funds, from being dual priced on a quoted-spread basis to a full-spread basis on 25 March.
Concerns have been raised in the industry that media coverage of liquidity positions could trigger a run on funds, despite the fact that funds are raising cash levels and the market is more liquid than in 2016.
PA viewpoint The Financial Conduct Authority made headlines in February when it was revealed it was monitoring property funds daily for liquidity.
In early July 2016, less than two weeks after the Brexit referendum, Standard Life, Aviva Investors and M&G gated funds, soon followed by Columbia Threadneedle and Janus Henderson. Investors pulled £5.7bn from the sector in the period from January to July 2016, according to Morningstar Direct.
Total assets in the sector have shrunk from £14bn in May 2016 to £11.9bn in December 2018.
What the industry thinks Kames Property Income co-manager Richard Peacock said: “Given the market outlook, we are targeting a liquidity position of around 25%.”
Peacock’s fund has had bid pricing in five of the 59 months since launch. “By comparison,” he added, “the majority of the peer group swung to bid price in 2016, due to outflows, and have remained on that pricing basis.”
“It’s starting to happen again,” added Morningstar director for manager research ratings Jonathan Miller about December outflows and pricing adjustments. He attributed recent adjusted pricing at Kames and Threadneedle to outflows and “presumably a feeling their rainy-day cash wouldn’t suffice”.
Factors other than Brexit have also compounded outflows.
“Property managed a respectable 7. 5% total return over the year so the investment community did trim quite aggressively,” said Architas investment manager Jen Causton. She expects funds would have to gate if there is a no-deal Brexit.
IN NUMBERS
28.85%
Scottish Widows HIFML UK Property Fund return since Brexit vote
7.3%
Aviva Inv UK Property return since Brexit vote
£315.6M
IA Property outflows in December 2018
Source: FE/IA
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