The number of British property funds suspended after the country’s vote to leave the EU more than doubled on Wednesday, leaving more than ￡18 billion (US$23.37 billion) frozen in the biggest seizing up of investment funds since the 2008 financial crisis.
Seven funds have pulled down the shutters after a wave of investors asked for their money back amid speculation about a possible drop in commercial property prices in reaction to the result of the June 23 referendum.
That in turn has raised concerns about the outlook for the broader financial system, given the risk of investors bailing out of other asset classes in a panic and of lenders to the sector, such as banks, suffering fresh balance sheet stress.
Henderson Global Investors, part of Henderson Group PLC, on Wednesday said it had temporarily suspended trading in its ￡3.9 billion UK property authorized investment fund (PAIF) and PAIF feeder funds due to “exceptional liquidity pressures” given uncertainty after the Brexit vote and the other suspensions.
It was followed within the hour by Columbia Threadneedle, part of the Ameriprise Group, which said it had suspended trading in its Threadneedle UK property fund.
Canada Life Financial Corp said it had also suspended its Canlife Property and Canlife UK property funds, describing this as a deferral of requests to withdraw investments.
“The deferral can be for up to six months, enabling the funds to ensure property values reflect market conditions,” it said in a statement.
Late on Wednesday, Aberdeen Asset Management PLC said withdrawals from its ￡3.2 billion UK property fund that it had received before 11am would face a 17 percent dilution levy, and that it would not fulfil later orders. It expected to reopen the fund at 11am yesterday.
They joined rival funds managed by M&G Investments, Aviva Investors and Standard Life Investments that suspended trading on Monday and Tuesday.
BlackRock Inc, the world’s largest asset manager, on Friday last week told investors that it raised quarterly redemption charges on its ￡3.3 billion BlackRock UK property fund from 2 percent to 5.75 percent.
“Over half of the property fund sector is now on ice, and will remain so until managers raise enough cash to meet redemptions. To do that they need to sell properties and, as any homeowner knows, that is not a quick or painless procedure,” said Laith Khalaf, senior analyst at fund supermarket Hargreaves Lansdown PLC.
“These funds are therefore likely to be closed for weeks and months rather than simply a matter of days,” Khalaf wrote in a note to clients before Aberdeen’s announcement.
The British Financial Ombudsman Service said it had begun to receive calls from retail investors worried about the closures and the potential hit to their savings.
“Although the decision to suspend redemptions was expected, the extent of the suspensions by the three funds so far is quite troubling,” a spokeswoman said shortly before Wednesday’s fund announcements.
Duff & Phelps London-based Real Estate Advisory Group director Keenan Vyas said that the consequences could be profound.
“If there continues to be a tremendous amount of redemption pressure in a short period of time, this could result in a large number of sales transacting below book value and an eventual overall correction in property asset pricing across the UK market,” Vyas said.
Concerns that the UK upheaval could spread to Germany, Europe’s other big real-estate investment market, were also overdone, with no increase in demand to redeem there, managers at Deka, Union Investment and others said.
As well as being better diversified, with UK property making up no more than 20 percent of most German funds’ portfolios, retail investors are also prevented from getting their investments back for 12 months.
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