A number of daily-traded open-ended property funds have announced a temporary suspension of trading or an intention to close altogether.
In a bid to ease investor nerves, the Association of Real Estate Funds has issued a statement urging calm.
The funds aim to offer intermediary investors a differentiated style of returns mixing stable income and capital growth opportunities, providing diversification and typically offering lower volatility.
These funds hold a level of cash to deliver daily liquidity and can deploy a limited range of tools to manage liquidity requirements. The daily-traded aspect is entirely linked to the requirements of the platform infrastructure used by the wealth management industry, as well as many Defined Contribution Pension offerings.
The statement from the Association of Real Estate Funds says: “As in any funds sector, closure or merging of funds is a normal part of the cycle and often relates to performance and positioning of individual fund strategies.
“A number of daily-traded open-ended funds still remain, serving both wealth management and Defined Contribution investors, and continue to deliver the differentiated returns and benefits of diversification to the investor base. The funds are usually ungeared, have low correlation to the equity market without the added risk exposure of leverage.”
It continues: “The Financial Conduct Authority continue to consider alternatives to the daily-traded model for intermediary investors to access UK property, however it is recognised that the platform infrastructure would need to develop to facilitate any potential change.
“No decision has yet been made and the funds continue to operate, providing attractive investment solutions to their clients.”
The association insists that UK property open-ended funds have an important role to play in retaining investment within the UK economy and support the growth and regeneration of UK plc.
It says that long-established Defined Benefit (DB) schemes have traditionally been long-term funders of British real estate.
But it claims that most are very mature and closed to new members, so are reducing in size. Furthermore, growing numbers are being transferred to insurance companies, who are generally holding more liquid investments – not unlisted real estate.
The association concludes: “Defined Contribution (DC) pension schemes are growing in popularity and size, and can benefit from exposure to alternative assets such as private equity and real estate.
“Currently they do not make as much investment in real estate as the DB funds which they are replacing, partly due to size, but mainly because most of the platforms through which they invest will only take daily-dealt products.”
The association says there are structural impediments to DC funds and it sets out ideas for overcoming them in a submission to HM Treasury in advance of this week’s Autumn Statement.
A summary and the full submission are available at https://www.aref.org.uk/resource/aref-submitted-workable-proposals-for-unlocking-dc-pension-investment-in-advance-of-chancellor-s-autumn-statement.html.