4th July 2016 – Following a significant increase in the number of investors redeeming their holdings, Standard Life Investments has suspended trading on its UK Real Estate fund.
During the run up to the EU referendum, and post the result, the numbers of investors redeeming their holdings in property funds has increased quite significantly, as the uncertainty over the outlook for the UK property market continues.
When the number of investors selling their holdings in a physical property fund far outnumbers those buying, it can be a problem because the managers cannot sell their assets quickly enough to raise cash to meet investor redemptions.
What does this mean?
This means investors cannot buy or sell the Standard Life UK Real Estate fund at the moment. The fund has not lost any value and will continue to pay its yield. However, the fund's cash reserves have now fallen. Therefore, to protect existing investors in the fund and to prevent the fund manager from being forced to sell their property at low prices, Standard Life Investments have taken the decision to suspend trading on the fund.
When will the fund re-open?
This is yet to be determined, but the fund will stay closed for a minimum of 28 days. The fund will now be valued weekly.
What about other UK physical property funds?
Update (6th July 2016): trading has also been suspended on Aviva Investments Property Trust, M&G Property Portfolio, Threadneedle UK Property and Henderson UK Property. There is a possibility that other UK physical property funds may follow suit. You should be aware of this if you need to access to your capital in the short term, as there is a chance that other property funds will also suspend dealing and you may not be able to get your money out quickly.
Does it matter if I'm a long-term investor?
There should not be an issue if you are a long-term investor. Property funds will continue to pay out income if you are in the income share class, regardless of whether they are closed or not. Property remains a good diversifier in a wider portfolio and the fund will re-open at some point.
You should also be aware that most property funds have already had a 'fair value adjustment' of around 5% since the Brexit vote. Most funds have also moved from offer to bid pricing resulting in a further 5% downward move in price. If you sell now, you will crystallise this loss. However, it is of course possible that values could fall further.