L&G eases Brexit discount on UK property fund

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LGIM has increased its fair value pricing adjustment on its £2.3bn UK property fund 5 per cent as conditions in the sector show signs of stabilising after the Brexit vote.

The L&G UK Property fund now has fair value pricing of negative 10 per cent, compared to the negative 15 per cent it introduced in the period after the UK’s vote to leave the European Union.

Due to the sector’s volatility the company will make weekly valuations of the fund until the market stabilises further.

Last week Aberdeen Asset Management lifted a temporary suspension on its UK property fund as it introduced a 17 per cent exit charge to discourage redemptions. However, more than half the £25bn property fund sector remains gated as nervous investors seek to withdraw from the commercial property sector.

In a statement, the company says: “While it remains difficult to predict the exact impact of the vote to leave on commercial property values, conditions in the market and within our peer group have begun to stabilise since 6 July.

“We will continue to monitor market events closely, using all available sources and our experience of the property market. Our move to more frequent, weekly valuations ensures that we have up to date information and we intend to unwind fair value pricing as soon as markets normalise further.”

The new price, announced this week, was applied from 15 July.

Hargreaves Lansdown senior analyst Laith Khalaf says buying or selling property funds at the moment is a “risky business” with prices bouncing around without warning.

He says: “Property funds are likely to exhibit extreme volatility in the current environment, as valuers seek to get a handle on what the referendum result has actually done to the UK commercial property market.

“The reduction in the fair value adjustment isn’t an indication of a reversal of flows into the property fund sector, rather it’s a moderation of the mark-down made to the underlying property portfolio in the aftermath of the Brexit vote.”