On Wednesday, Aberdeen, Aviva Investors, BDO, Legal & General and Standard Life Investments all suspended redemptions. Janus Henderson and Kames Capital suspended their funds on Monday – seven in total with assets worth more than £7 billion. Fitch Ratings said more are likely to follow: “We consider it probable that other property funds offering daily liquidity, which have not yet suspended redemptions, will face similar levels of pricing uncertainty, forcing them to suspend redemptions. Suspension of redemptions due to high outflows may be triggered before fund boards can implement a pricing-uncertainty-driven suspension.”
The Investment Association said valuation firms can no longer make reliable judgements on asset values. Under FCA rules applying to funds investing in inherently illiquid assets, such as commercial property, funds with more than 20% of their portfolio subject to material valuation uncertainty are required to suspend subscriptions and redemptions in the interests of all investors. Although these rules are not due to come into force until September 2020, existing rules would require fund managers to consider suspending funds in circumstances like the ones they are facing at the current time. Fund managers are acting promptly to protect investors and there have been a number of such suspensions with more likely to occur.
Paul Richards, Managing Director of the Association of Real Estate Funds (AREF), said:
“Investing in UK property is an investment in hotels, offices, shops, warehouses, and restaurants up and down the country. COVID-19 is causing great economic uncertainty, hitting all of these businesses, and also reducing the number of investment transactions which provide evidence for property valuations. This means that valuers can no longer assess the value of properties with a high degree of certainty. Under these conditions, property funds need to suspend while this extraordinary situation lasts, in order to ensure that investors, mostly long-term pension savers, are protected. Strict FCA regulations apply, in order to ensure that all investors are treated fairly.”
A statement by the Financial Conduct Authority said:
“The FCA understands that certain Standing Independent Valuers have determined that there is currently material uncertainty over the value of commercial real estate (CRE). In such situations, a fair and reasonable valuation of CRE funds cannot be established. As a result, some managers of open-ended CRE funds have temporarily suspended dealing in units of these funds and others are likely to follow for the same reason. Suspensions can be used by managers of open-ended funds, in line with their obligations under applicable regulations. In these circumstances, suspension is likely to be in the best interests of fund investors.”