There has been much focus on the reaction of property fund managers following the referendum. We were well prepared ahead of the vote having ensured the Aberdeen UK Property Fund had around 25 per cent in cash. Some investors had been taking profits in the months preceding the vote so property funds had been experiencing moderate outflows. But we did not envisage the rush to the door experienced by the sector in the past fortnight. The decision to suspend trading by other property funds intensified the focus on our fund.
Rather than follow suit we wanted to continue to provide investors with liquidity but, given market conditions, they would need to take a reduced price. I liken it to selling a house. If the owner wants quick sale, compressing the sales process – an estate agent marketing the property, a buyer employing a surveyor and the legal paperwork – a discount to the value is to be expected.
Our focus was on treating all customers fairly throughout the decision-making process. That’s why we took an alternative approach and it has been well received by investors and advisers in the fund. Intermediaries and platforms have worked tirelessly to contact all those investors who placed redemption trades last Wednesday.
The closure of various funds has prompted comparisons to be made with the global financial crisis in 2008, when the commercial property market collapsed. But back then the catalyst was a credit squeeze due to banks withdrawing funding. The Brexit vote has been a shock to the system this time around but banks are not withdrawing funding. The low interest rate environment means property will continue to be considered as a source for income and the 10 per cent decline in sterling vs the US dollar and Euro will attract overseas investors.
Hopefully market conditions will begin to settle down. The curtailment of the Conservative leadership contest with a new Prime Minister now in place should help. Now is the time for calm decision-making and leadership forging new relationships for the UK economy with the EU and the rest of the world.
Martin Gilbert is chief executive of Aberdeen Asset Management