Due to the escalating effects of the Covid-19 pandemic, a growing number of asset managers have decided to, in accordance with FCA guidelines, suspend the trading of their UK property funds. Each of the suspensions have been attributed to independent property values adding a “market uncertainty clause” to all valuation reports due to the unprecedented circumstances caused by the outbreak.
The market uncertainty clause informs fund managers that, given the current situation, less certainty and therefore a higher degree of caution should be attached to the valuation of the funds’ assets. What is the value of a pub, a hotel or retail premises if they can’t be used?
Many of our clients will have a small holding in UK property; most commonly in the L&G UK Property Feeder fund or the TIME Commercial Long Income fund. Both funds were suspended on the 18th March 2020.
This is not the first time Property funds have suspended the trading. It happened previously in June 2016 on the result of the EU Referendum. The fund triggers the suspension to ultimately protect investors interests. As the funds are “collectives”, meaning investors capital is pooled together to purchase property, if all the investors decide to encash their holding at the same time, the fund is forced to liquidate assets (sell property). As we all know, property is typically not something that can be sold quickly with commercial property often taking far longer than residential. Also, when buyers know that a seller is being forced to sell due to investors fleeing from the fund, one would expect that an asset would have to be sold at a discount to its market value.
SN Financial Services would like to highlight that property funds make for a minor holding in our clients’ portfolios and that we do not perceive this to be of significant concern at this point in time. If you would like to discuss matters further however, please get in contact and we can arrange for a call with our one of our Advisers, Stuart Neale or Jack Jones.