Advisers in the eye of the property storm

Natalie Holt, journalist with Money Marketing Photo by Michael Walter/Troika

Henderson was the first to break ranks. On 27 June, only the second working day following the UK’s decision to leave the EU, the fund group announced it had cut the price of its UK Property fund by 5 per cent due to uncertain property valuations.

A week later, Standard Life Investments decided to be bolder, suspending trading on its £2.7bn UK Real Estate fund. Other major property funds including Aviva Investors and M&G followed suit, falling like dominoes.

The circle was completed last week when Henderson too suspended dealing in its £3.9bn property fund.

Since suspending trading has become de rigueur among property funds over the last coupe of weeks, there has been a clutch of industry voices saying they saw this coming. (They may be telling the truth, but undoubtedly there are also some investment professionals who are all of a sudden confusing hindsight with foresight).

They point to the pursuit of unrealistic yields of 6 per cent plus when at the same time the high street is said to be in a state of permanent decline. Brexit may have brought the property sector crashing down, but stretched valuations ahead of the vote point to a market that was clearly teetering before the fall.

A lot of funds moved to suspend trading one after the other, whipping up a sense of “market panic”. I for one am becoming increasingly disillusioned with the media outlets that are conflating the machinations of property funds meant to protect investors with full blown recession. This is irresponsible, and will only fan the flames even more.

Some of the rush to redeem will be driven by institutional investors, but some will be retail sales. It is not clear how much of affected assets are advised, but speaking to a small cross-section of the market Money Marketing found clients’ exposure (whether direct or through multi-asset funds) ranges from 2 to 12 per cent.

It would be interesting to hear from advisers on this as to whether clients are worried about the impact of the property saga on their portfolios. As policymakers eye changes to property funds to make them harder to get out of, and overall less attractive as an investment, advisers will have a job to do in reassuring clients.

Any panic on the retail side will come down to a basic lack of understanding among investors about the illiquid nature of their investments. This should not be a problem for those with good advisers behind them.

Natalie Holt is editor of Money Marketing – follow her on Twitter here