More than £9bn of assets in property funds still on ice

house key keys keyring home propertyThere is still a “significant” £9bn held in suspended commercial property funds despite a number of them slowly re-opening for dealing, according to Hargreaves Lansdown’s Laith Khalaf.

Henderson UK Property fund recently announced it will re-open in October while the Threadneedle Property fund re-opened a week ago.

The Aberdeen UK Property fund, the F&C UK Property fund, the Kames Property fund and Legal & General UK Property Trust PAIF all lifted their dealing freeze this month.

However, three property funds remain gated; the Aviva Investment Property Trust, the M&G Property Portfolio PAIF and the Standard Life UK Real Estate fund. While the M&G and SLI funds have signalled a reopening at the end of the year, the property fund from Aviva might wait up to six months to reopen.

Khalaf, a senior analyst at Hargreaves Lansdown, says despite some funds lifting their suspension and improving their liquidity buffer, the “problem” of open-ended funds investing in property persists.

He says: “The property fund freeze we saw in the aftermath of Brexit is beginning to thaw, as funds re-open their doors and remove their downward adjustments to valuations. There is still a significant proportion of the sector on ice, and Aviva has warned they may not reopen until next year, but recent developments have nonetheless been positive.

“The fundamental problem with investing in property via open-ended funds has not gone away though, and may well rear its head again. Liquidity concerns will continue to hinder the investment strategy of funds in the sector and will prompt managers to hold high levels of cash, so a fair whack of investors’ capital will be returning next to nothing.”

SquareMile head of research Victoria Hasler recently told Fund Strategy the managers of commercial property funds she has been meeting have not shown signs of worry about the sector and has reassured most of the gated funds continue to pay an income to investors.

Khalaf adds: “Investors want property in their portfolio for diversification and income, both of which are in short supply right now, thanks to central bank policy. Investing in this area does come with high transactional and ongoing costs, but if investors do wish to gain exposure they are probably better off accepting the additional volatility of closed ended vehicles, rather than investing in an open ended fund where the manager is working with one arm tied behind their back.”