BMO’s Guy Glover: Property investors not out of the woods yet

BMO property manager Guy Glover has argued the recent general election in the UK and a potential “softer” Brexit have shrugged off fears of big impacts on the property market compared to a year ago.

However, the manager of the £300m F&C UK Property fund says market uncertainties remain for investors.

Glover says: “Property being a long term investment means this latest political events may affect the market less than many might think. At this point, the UK still has the same administration and the same leader and Brexit ‘still means Brexit’, albeit may be with a softer tone.

“There is increased uncertainty in the market at the moment – and this is the last thing markets, including property, need at the moment.”

Before the general election, Glover said he was holding off investing in Scotland due to the likelihood of another independence referendum but prospects have improved for the region, he says.

However, he says: “Whilst uncertainty has increased in many areas the probability of a second Scottish referendum has undoubtedly reduced and talk of some fiscal easing has been mooted. But fundamentally, the lack of clarity that has existed since the referendum carries on.

“The horse-trading that was expected once the EU exit talks began has been supplemented by a similar process within the UK. However, the scale of adjustment that gripped equity and property markets in the immediate aftermath of the referendum does not seem to have been replicated this time.”

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.”