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Some UK property funds defer investor withdrawals
Global Banking & Finance Review®
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By Carolyn Cohn and Elizabeth Howcroft
LONDON (Reuters) – Some of Britain’s top open-ended property funds are rolling out new measures to manage investor exit requests, as challenges in meeting redemptions continue to rise amid a sell-off in some UK risk assets.
Last week’s spike in UK gilt yields sent many British pension funds scrambling for cash to meet collateral demands from specialist fund managers tasked with helping them to match their liabilities against their assets.
Many pension funds opted to sell bonds to soothe their liquidity crunches but others are also looking to reduce their exposure to less liquid assets like real estate in the near term, according to industry sources.
Columbia Threadneedle said on Monday it was switching to monthly rather than daily exit requests from its 2.3 billion pound ($2.61 billion) Threadneedle Pensions Pooled Property Fund, citing liquidity constraints, market volatility and “a subsequent increase in redemption requests”.
“We believe introducing this procedure is in the best interest of investors in the fund, allowing for an orderly sale of assets to meet redemption requests,” a spokesperson said in a statement, adding that Columbia Threadneedle aims to return to daily settlement as soon as possible.
Pension funds typically hold a small percentage of their assets in real estate, which can offer regular income like a bond but also the opportunity of capital value growth over time.
But real estate can be tough to trade in and out of compared with stocks or bonds, meaning property funds have to have special mechanisms which give managers time to sell assets to cash investors out.
Rival manager Schroders said it would delay paying out most of 65.1 million pounds worth of second quarter redemption requests from its UK real estate fund that would ordinarily have been paid on Oct 3.
Just 7.8 million pounds would be paid on Oct. 3, Schroders said, with the rest rescheduled for on or before July 3.
Schroders said the deferral decision was made in order to maintain the fund’s minimum cash holdings and manage committed capital expenditure requirements.
The fund, Schroders Capital UK Real Estate Fund or “SCREF”, was worth 2.7 billion pounds as of 30 June.
U.S. funds giant BlackRock has also deferred redemptions from its 3.5 billion pound BlackRock UK Property Fund following a rise in exit requests in the second quarter of this year, a source familiar with the matter told Reuters.
($1 = 0.8803 pounds)
(Editing by Sinead Cruise; editing by David Evans)
Liquidity refers to how easily an asset can be converted into cash without affecting its market price. High liquidity indicates that assets can be sold quickly, while low liquidity means it may take longer to sell.
Open-ended property funds are investment vehicles that allow investors to buy and sell shares in the fund at any time. The fund invests in real estate and is valued based on the market value of its properties.
Redemption requests occur when investors ask to withdraw their money from an investment fund. In times of market volatility, these requests can increase, leading funds to implement measures to manage liquidity.
A pension fund is a type of investment fund that collects and invests money to provide retirement income for its members. It typically invests in various assets, including stocks, bonds, and real estate.
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