AuthorTopic: UK's Largest Property Fund Halts Redemptions, Fears "Vicious Circle"  (Read 891 times)

Offline Palloy

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http://www.zerohedge.com/news/2016-07-04/bear-stearns-20-uks-largest-property-fund-halts-redemptions-fears-vicious-circle
Bear Stearns 2.0? UK's Largest Property Fund Halts Redemptions, Fears "Vicious Circle"
Tyler Durden
Jul 4, 2016

In the summer of 2007, two inconsequential Bear Stearns property-related funds were gated and then liquidated, exposing the reality of the US housing bubble and catalyzing the collapse of the financial system. While equity markets have rebounded exuberantly post-Brexit, suggesting all is well, British property-related assets have tumbled and, as The FT reports, Standard Life has been forced to stop retail investors selling out of one of the UK’s largest property funds for at least 28 days after rapid cash outflows were sparked by fears over falling real estate values. As one analyst warned, "the risk is this creates a vicious circle, and prompts more investors to dump property."

    Standard Life Investments has suspended trading on its £2.7 billion U.K. Real Estate fund, effective immediately, following Brexit, Investment Week reported, citing a statement.

    The firm has suspended trading on the SLI UK Real Estate PAIF and the SLI UK Real Estate income and accumulation feeder funds.

    The company cites "exceptional market circumstances" following an increase in redemption requests from the referendum.

The £2.9bn commercial property fund will need to sell real estate to raise cash before any money can be redeemed.

And, as The FT reports, the last property crash in the UK in 2007 was preceded by a wave of similar gatings by funds struggling to meet investor demands for cash. They led to firesales of property that added to the pressure on an already falling market.

    Last week, Standard Life was one of a handful of UK open-ended property funds to mark down the value of the buildings they own by 5 per cent in the wake of the UK’s vote to leave the EU.

    In another sign of stress in the sector, some closed-ended property trusts are trading at discounts of more than 10 per cent to their net asset value, which reflects fears over the future of commercial property.

    “Given the outflows the sector seems to be experiencing, this could well put downward pressure on commercial property prices,” said Laith Khalaf, senior analyst at Hargreaves Lansdown. “The risk is this creates a vicious circle, and prompts more investors to dump property, until such time as sentiment stabilises.”


Retail investors have been attracted to property funds in recent years in part because returns from other types of investment have been so low.

    Investors in the fund will be unable to redeem their holding for at least 28 days. The asset manager said the suspension on the fund’s trading will end “as soon as practicable”, and will be reviewed every 28 days.

    Standard Life said the decision was taken to avoid the fund’s managers being forced to sell buildings quickly in order to satisfy redemption requests, which have increased “as a result of uncertainty for the UK commercial real estate market following the EU referendum result”.

    “Unless this selling process is controlled, there is a risk that the fund manager will not achieve the best deal for investors in the fund, including those who intend to remain invested over the medium to long term.”

    Adrian Lowcock, head of investing at Axa Wealth, said the suspension of the fund “brings back to focus the issues with investing in open-ended property funds”.

    “During the financial crisis many investors were stuck in funds which had closed to redemptions as liquidity dried up,” he said.

A spokeswoman said the fund will be closed for the foreseeable future to give the fund manager more time to sell assets to raise its cash levels at the best possible price. "The suspension was requested to protect the interests of all investors in the fund and to avoid compromising investment returns from the range, mix and quality of assets within the portfolio."

*  *  *

Storm in a teacup we are sure... because once Carney drops the next QE bomb, everything will be fixed, right? Or dead canary in the Brexit contagion coalmine? The big question is - how do you hedge your exposure for th enext 28 days until you might - just might - be allowed to get your money back?

As we ironically noted previously, Brexit is a Bear Stearns moment, not a Lehman moment. That’s not to diminish what’s happening (markets felt like death in March, 2008), but this isn’t the event to make you run for the hills. Why not? Because it doesn’t directly crater the global currency system. It’s not too big of a shock for the central banks to control. It’s not a Humpty Dumpty event, where all the Fed’s horses and all the Fed’s men can’t glue the eggshell back together. But it is an event that forces investors to wake up and prepare their portfolios for the very real systemic risks ahead. In other words - it's the beginning of the end.
The State is a body of armed men

Offline g

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Re: UK's Largest Property Fund Halts Redemptions, Fears "Vicious Circle"
« Reply #1 on: July 05, 2016, 03:29:02 AM »
Thanks for this one Palloy, somehow I missed this most important piece.

The Big Trouble always starts this way in my experience, a leak in the dike that quickly turns into a blowout  gusher.

Offline Surly1

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Re: UK's Largest Property Fund Halts Redemptions, Fears "Vicious Circle"
« Reply #2 on: July 05, 2016, 07:59:08 AM »
Thanks for this one Palloy, somehow I missed this most important piece.

The Big Trouble always starts this way in my experience, a leak in the dike that quickly turns into a blowout  gusher.

Domino #2: UK's Aviva Property Fund "Frozen" Due To "Lack Of Immediate Liquidity"
http://www.zerohedge.com/news/2016-07-05/domino-2-uks-aviva-property-fund-frozen-due-lack-immediate-liquidity
"Do not be daunted by the enormity of the world's grief. Do justly now, love mercy now, walk humbly now. You are not obligated to complete the work, but neither are you free to abandon it."

Offline Eddie

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Re: UK's Largest Property Fund Halts Redemptions, Fears "Vicious Circle"
« Reply #3 on: July 05, 2016, 09:21:26 AM »
Domino #3, according to ZH. I'm far from convinced that any real dominoes are falling. More bail-outs, maybe a few bail-ins.

http://www.zerohedge.com/news/2016-07-05/domino-3-mg-suspends-trading-6-billion-uk-property-fund
What makes the desert beautiful is that somewhere it hides a well.

Offline Palloy

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Re: UK's Largest Property Fund Halts Redemptions, Fears "Vicious Circle"
« Reply #4 on: July 07, 2016, 06:55:03 AM »
We're up to dominoes #8 and #9 now:

http://www.zerohedge.com/news/2016-07-07/redemption-panic-accelerates-two-more-uk-property-funds-slash-value-their-property-a
As Redemption "Panic" Accelerates, Two More UK Property Funds Slash Value Of Their Property Assets
Tyler Durden
Jul 7, 2016

Here come dominoes #8 and #9.

As we reported yesterday in the latest twist of the post-Brexit "falling dominoes" where UK property funds have frozen assets and suspended redemptions, which has so far seen over half of the the £25bn in UK property sector suspend trading including such names as M&G Investments, Standard Life and Threadneedle, UK's asset management giant Aberdeen not only halted redemption requests, but triggered a 17% cut to its asset values for anyone who wants to withdraw their money.

This idea appears to have struck a chord with the rest of the country's "liquidity-challenged" asset managers, and overnight two more fund proceeded to "cut" the value of their property fund assets.

As Reuters reports, Legal & General's fund arm and F&C Investments both cut the value of their UK property funds on Thursday, as the industry seeks to stem a tide of redemption requests since Britain's vote to leave the European Union.

The move to cut the value of the fund is a less extreme method of controlling redemptions, as it effectively forces those looking to leave to accept a lower price than was established the last time the property portfolio was valued.

Legal & General Investment Management, the fund arm of insurer Legal & General, said it had cut the value of its 2.3 billion pounds UK Property Fund by a further 10%, after a previous 5% valuation cut. This means that anyone who wants access to their money right now will have to accept a 15% haircut.

"At this time it is still difficult to predict the exact impact of the vote to leave and subsequent market events on commercial property values," LGIM said in a statement.

In a less drastic move, F&C, part of the fund arm of Bank of Montreal, said it had cut the value of its 305 million pound UK Property Fund by 5% as part of a move to fair value pricing.

"The level of redemption requests we have recently received and market conditions suggest that investors may place further redemptions; leading to downward pressure on realisable property values," it said on its website.

"The move to fair value pricing for the Fund means we may make adjustments to the valuation of its property assets to ensure that they are priced at a level which, in our opinion, reflects a fair and reasonable price for those assets."

* * *

Meanwhile, the fund that proposed the novel solution to dissuade redemptions appears to be experiencing mixed success: as Reuters adds, Aberdeen Asset management extended the suspension period for its 3.2 billion pound ($4.17 billion) Aberdeen UK Property Fund to Monday July 11, it said on Thursday.

The fund manager suspended the fund for 24 hours on Wednesday and cut its value by 17 percent.

    "Investors who placed trades yesterday have asked for more time to consider whether to withdraw their redemptions," Aberdeen chief executive Martin Gilbert said in a statement.

    Aberdeen's fund is the seventh UK property fund targeted at retail investors to have suspended trading this week. The funds together have over 18 billion pounds in funds under management.

What the above really says is that despite attempts at dissuading investors, the fund is still suffering a surge in redemption requests and as a result the suspension period continues which prevents investors from receiving their funds until next week. We are confident that this means that Aberdeen will likely have to implement even more aggressive haircuts now that its initial "bid" has failed, or simply extend the freeze indefinitely like most of its peers as billions in assets remain inaccessible for tens of thousands of investors.
The State is a body of armed men

 

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