Gary Hutcheson, the head of property at Ignis, says the asset management industry may need to review how retail investors gain exposure to property.
The financial crisis prompted severe outflows from the property sector, forcing many funds to defer redemptions in order to prevent a fire-sale of assets. Among the firms affected were high-profile industry names such as Aviva, Axa and New Star, which all imposed temporary deferrals on withdrawals to allow for an orderly sale of properties to meet outflows.
“I think the industry will have to think again about how to structure retail property investments,” says Hutcheson.
“You’re essentially putting a long-term asset into a short-term wrapper.”
Over the two years to September 16 the Investment Management Association (IMA) Property sector fell by 34.51%. The sharp drops undermined faith in commercial property as a diversifier as asset classes across the board tumbled in the wake of the credit crisis.
The reversal of the property bull market caused many retail investors to pull their money out, forcing fund managers to start selling and exposing the problems of holding a relatively illiquid asset class in an open-ended structure.
Hutcheson says asset management companies should be careful in the way they market their property funds to investors.
“Longer-term statistics suggest that it is a good diversifier, but over the past two years that hasn’t been the case,” he says. “I think property comes into its own as a good, steady, high-yielding asset class.”
Ignis has been quiet in the past in terms of advertising its property offerings, although it manages £1.7 billion in its property funds. Hutcheson says the funds did not see the level of redemptions that some of the group’s competitors have endured over the crisis which has meant it was able to keep good-quality holdings.
“You’ve got to be careful about what you’re investing in,” he says. “Some people have had to sell prime assets to meet redemptions and we haven’t had to do that.”
Ironically, if the commercial property market has bottomed out, Hutcheson says a key challenge for retail-focused property fund managers may be dealing with a torrent of money flooding the sector.