Standard Life is latest to lift property fund suspension, as markets steady

Standard Life is latest to lift property fund suspension, as markets steady

Standard Life is the latest asset management house to announce that it is lifting its property fund suspension, with the UK commercial property ‘panic’ now at an end according to Tilney Bestinvest.

The Edinburgh-based asset management house and life company follows Threadneedle’s recent announcement, as reported, in lifting the self imposed ban on redemptions from its property fund following a high number of investors looking to exit this asset class in the aftermath of the UK’s historic vote to leave the EU.

The Threadneedle UK Property and feeder fund suspension was lifted yesterday, at the 12 noon valuation point, the company announced in a statement. Standard Life Investments has also announced that it too will allow redemptions on its UK Real Estate fund from 17 October.

As reported in July, managers of a number of open-ended UK commercial property funds chose to apply arbitrary discounts to their valuations. This was followed by the suspension of a number of funds, as reported, as redemption requests mounted as investors rushed for the exit.

At the time some observers drew parallels with similar actions taken by property funds and money market funds as the 2008 credit crisis unfurled and liquidity dried up.

‘Resilient’ UK economy

Jason Hollands, managing director, business development and communications at Tilney Bestinvest, welcomed the move pointing to the UK economy proving to be “much more resilient” that many experts had predicted.

“Three months on from the referendum, with UK economic data so far having proved much more resilient than the majority of economists had predicted and the absence of either a market meltdown or recession, UK commercial property funds have started to lift their trading suspensions and reduce downward adjustments to their portfolio valuations as management groups report signs of stabilisation in the market,” said Hollands.

‘Fuelling panic’

“In our view, in the immediate aftermath of the referendum individual groups were undoubtedly acting prudently in applying market value adjustments to their portfolios in the absence of actual data on where prices would settle but collectively this had the effect of fuelling panic about the prospects for the asset class, creating a snowball effect of redemption requests that resulted in fund suspensions.”

For all the cosmetic similarities, Hollands believe that this was “nothing like a post-Lehman moment” where the financial system teetered on the brink and both liquidity and credit dried up. Credit, he says, has been in an abundant supply for some time and one outcome of the referendum has been yet more monetary easing with UK interest rates cut to a new all-time low and another round of quantitative easing.

Commercial property wobble

The summer commercial property wobble was, in Hollands opinion “a release of anxiety” about the unknown. He points that while Brexit does create headwinds for some parts of the economy and corresponding property subsectors, notably for those financial services institutions that benefit from regulatory passporting arrangements to sell products across the EU, there are also businesses that have been beneficiaries from the weaker Pound, which has improved export competitiveness and boosted tourism.

As a result, Hollands believes that it would be wrong to single UK commercial property out as an asset to avoid in the future entirely since it offers “that most rare of attributes in the current environment: a decent yield. “And it can also provide diversification benefits for a portfolio at a time when bonds and equity markets have become highly correlated (and expensive),” he added.

‘Well diversified’

“The key thing is to choose commercial property funds which are well diversified, where exposure to the City office market is not excessive, where tenant quality and occupancy rates are high and where the average unexpired lease period is of long duration and certainly extends well beyond the expected two year period when the UK will likely cease its membership of the EU and potentially the single market,” said Hollands.

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Gary Robinson

Commercial Director, Head of Video at International Investment.