UK Property funds post-Brexit

Update as at April 2017.

All of the funds listed below have lifted fund suspensions

One of the initial impacts of the Brexit vote concerned UK commercial property funds.

The post-referendum uncertainty of Brexit, coupled with the health of some of the UK’s retailers has led to a lack of confidence in the UK commercial property market. This has resulted in more investors withdrawing from UK property funds.

A consequence of the withdrawals is that a number of the UK’s most well-known property funds initially suspended trading and subsequently some have imposed different measures to stop clients temporarily withdrawing cash from the funds. As property is classed as an illiquid asset (meaning it can take time to sell easily, without drastically reducing the price of the asset) the fund managers have been forced into the situation of restricting the purchase and sale of the units within the funds. Some of the recent actions taken by fund managers include:

– Moving fund pricing to outflow (bid) basis. This reflects funds seeing greater outflows than inflows and allows managers to price their funds taking into account the costs associated with selling property.

– Increasing the frequency of the valuation of the underlying properties (usually moving from monthly to weekly).

– Applying a fair value pricing adjustment. This is a reduction in the price of the fund reflecting what is considered to be a fair assessment of current market conditions without a formal valuation taking place. – Applying a dilution levy. This is an adjustment to the price applied when a transaction is placed.

– Deferring or suspending transactions in their funds. The fund manager’s aim is to protect the interests of existing investors, so rest assured, investments held within the funds are safe but where a fund has suspended trading, units in the fund cannot currently be sold or bought. It is possible that when the funds reopen, the prices may be lower than before the suspension. Fund managers will seek to reopen their funds when possible, but this may not be for a number of months.

Here is a summary of the affected property funds and how they are currently dealing with the requests for encashments

Property funds which have suspended trading…

Aviva Investors Property Trust: From 5 July 2016 all dealing (buy and sell) in the fund has been suspended. Aviva has stated it will review the suspension on a daily basis and inform us when the fund is re-opened. This fund is available on the Zurich Intermediary Platform, Sterling ISA and Investment Account, and Sterling Bond and Zurich Pensions.

Henderson UK Property: From 5 July 2016 all dealing (buys and sells) in the fund have been suspended. Henderson has not stated how long the suspension will last but have said it will review the position at least every 28 days. This affects the PAIF fund and associated feeder funds. This fund is available on the Zurich Intermediary Platform, Sterling ISA and Investment Account and Sterling Bond and Zurich Pensions.

M&G Property Portfolio: From 5 July 2016 all dealing (buys and sells) in the fund have been suspended. M&G has not stated how long the suspension will last but have said it will review the position at least every 28 days. This affects the PAIF fund and associated feeder funds. This fund is available on the Zurich Intermediary Platform, Sterling ISA and Investment Account and Sterling Bond and Zurich Pensions.

Standard Life UK Real Estate: From 4 July 2016 all dealing (buys and sells) in the fund have been suspended. Standard Life has stated this will cease as soon as possible and will be formally reviewed every 28 days. This affects the PAIF fund and all associated feeder funds. This fund is available on the Zurich Intermediary Platform and Sterling Bond and Zurich Pension (currently named Ignis UK Property).

Threadneedle UK Property Fund: From 6 July all dealing (buys and sells) in the fund have been suspended. Columbia Threadneedle has not stated how long the suspension will last but is reviewing the position on an ongoing basis. This affects the PAIF fund and associated feeder funds. This fund is available on the Zurich Intermediary Platform and Sterling ISA and Investment Account.

Funds which remain open but are applying fair value pricing/dilution…

Aberdeen Property Fund: Aberdeen has lifted the temporary suspension of the fund which was in place from 5 July to 13 July. The fund is tradeable from 14 July 2016 but is applying a dilution levy (17% as at 14 July). This affects the PAIF fund and associated feeder funds. This fund is available on the Zurich Intermediary Platform. Please click HERE for more information on current pricing adjustments.

F&C UK Property Fund: This fund is currently open for trading. BMO Global Asset Management (which runs the fund) has applied a fair value pricing adjustment. As of 6 July this was 5%. This affects the PAIF and associated feeder funds. This fund is available on the Zurich Intermediary Platform. Please click HERE for more information on current pricing adjustments.

Kames Property Income Fund: The fund is currently open for trading. Kames has applied a fair value pricing adjustment. As at 7 July this adjustment is 10%. It has also currently waived its large deal provision that would normally apply to subscriptions, reflecting the fact it is not currently buying property. This fund is available on the Zurich Intermediary Platform.

Legal & General UK Property Fund: The fund is currently open for trading. Legal & General has applied a fair value pricing adjustment. As at 6 July this was 15%. It has also reduced the bid offer spread to 0% (from 7 July) reflecting the fact it is not currently buying property. This affects the PAIF and associated feeder funds. This fund is available on the Zurich Intermediary Platform.

We will keep you updated on the issue of property funds. However, if you have any queries please feel free to contact us.

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