UK Property freeze update: ‘fair value’ and ‘dilution’ adjustments at L&G, Aberdeen

Aberdeen Asset Management and Legal & General have announced measures to adjust the value of their UK property fund portfolios amid Brexit uncertainty.

Aberdeen last night announced a “dilution adjustment” on its UK property and feeder fund, which will apply a 17% reduction to the fund’s price for investors seeking to exit the fund.

Legal & General Investment Management has also today announced an additional -10% “fair value adjustment” to the portfolio of its UK property and feeder fund on top of the previously announced -5% adjustment, meaning a total -15% downward adjustment.

“While these adjustments are undoubtedly steep, bear in mind that most listed closed-end UK commercial property investment companies, are currently trading discounts in excess of -20% to their published net asset values,” said Jason Hollands, managing director of Tilney Bestinvest.

With the “outright gating” of investors in funds managed by the likes of Standard Life, Aviva, Columbia Threadneedle, Canada Life, Henderson and M&G, and steep adjustments being applied by Aberdeen and Legal & General much of the UK open-ended commercial property fund sector is therefore in effect, temporarily, no longer “open-ended”, Hollands said.

‘Issues to be addressed’

Andrew Bailey, the new chief of the Financial Conduct Authority, said on Tuesday that suspensions have been designed to allow a valuation process to take place in times of redemptions, but that there are “issues with the structures” of open-ended property funds that need to be addressed.

“The problem these funds face is that it takes time to sell commercial property to meet withdrawals, and the cash buffers built up by managers have been eroded by investors heading for the door,” said one senior analyst at London Central Portfolio, said in a statement yesterday.

Uncertainty after the Brexit vote and suspended trading in UK property funds drove the sterling below $1.30 to levels last seen in 1985, as the Bank of England said early this week economic risks caused by the referendum had “begun to crystallise”.

The moves by Aberdeen and L&G follows yesterday’s news that Henderson Global Investors, Columbia Threadneedle and Canada Life became the latest asset management groups to suspend trading on their UK property funds.

More than £12bn frozen

So far this week, as reported, six groups have suspended trading and now a further two have leading to over half of the the £25bn in the UK Investment Association’s property sector being frozen, with investors money trapped in the funds until further notice and now large chunk locked into exit penalties.

Hendersons announced yesterday that its £3.9bn property fund was being frozen in the wake of Brexit. This was followed by similar announcements by Columbia Threadneedle and Canada Life.

Standard Life Investments was, as reported, the first to make the move to suspend trading and restrict withdrawals from its UK Property fund on 4 July, followed by similar moves by Aviva Investors and then M&G just over 24 hours later.

Gary Robinson
Head of Video and Ezines at Open Door Media Publishing. Deputy Editor, International Investment. An experienced journalist and filmmaker with more than 20 years' financial services experience, both as journalist and originally as a fully qualified IFA, Gary works across both International Investment and InvestmentEurope titles. Previous video production credits include projects on BBC, C4 and SKY.

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