BMO property manager Guy Glover is holding off investing in Scotland due to the likelihood of another independence referendum.
The manager of the £300m F&C UK Property fund says there’s still “too much risk” to be actively allocating to Scotland.
“If there is an independence vote we would call off allocating further capital to Scotland” says Glover, who is now backing industrial and office spaces all over England rather than “struggling” retailers.
“I love Scotland, I like the fundamental economics there, but as of today there is a bit too much uncertainty. I wouldn’t want to buy a building and then be forced to sell it in the next two years because independence might happen.
“If I can see good property elsewhere I probably won’t take that risk. It is a risk which I don’t want to expose my investors to. The cost of buying and selling is around 8 per cent, so if I bought now, and invested in two years and get 10 per cent income then I was forced to sell it my true return for the investors might be 2 per cent.”
The F&C UK Property fund was not one of the fund’s suspended following the referendum, thanks to its 15 per cent cash weighting which made it possible to liquidate on request. Currently the cash holding is around 20 per cent.
However the fund did switch from offer to bid pricing with a price cut of 6 per cent, followed by a move to fair value pricing, whereby the value was reduced by a further 5 per cent.
From 5 August the fund switched the pricing from bid to mid-side as a result of positive inflows and increased the price by 4 per cent.
Glover says: “The fund is 10 per cent bigger than before Brexit vote and continues to grow steadily.”
FCA review: ‘Just about better communication’
More than nine property funds had to suspend investing for high redemption requests spurring investors to shun the sector as well as causing doubts over the structure of commercial property funds. This prompted the FCA to intervene and launch a review in the sector.
However, Glover says the regulator is mainly surveying the market asking fund managers how they can improve communication and education on the pricing changes and liquidity issues.
He says: “We met with [the FCA]. But [the review] is not going to be about big changes, it is all about how we can improve information through the platforms and how we can find more education for the investors about what happened with property funds in terms of changes in the pricing as it is not transparent for everyone on what’s happening.
“On explaining fund suspension…You haven’t lost your money, it is just there is not a lot of liquidity there. It is like a deposit account, you need to wait. We try to do as much due diligence on buildings so investors are confident that what we do is right for them to buy a fund.”