'Turbulent market' sees Kames and Aviva property funds suspended

Mike Sheen
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Kames  began blocking any instructions to purchase, sell or switch shares or units in the funds yesterday
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Kames began blocking any instructions to purchase, sell or switch shares or units in the funds yesterday

The £501m Kames Property Income fund and its feeder funds have been forced to suspend as a result of current "turbulent market conditions" making it impossible to accurately value property holdings, Investment Week has learned.

In a statement to investors Kames Capital said the Property Income fund's standing independent valuer CBRE had made the judgement that it could not accurately price the holdings and, in accordance with COLL rules, it had made the recommendation to close.

On 18 March the Aviva UK Property fund became the latest fund to be suspended in the last two days, following the gating of the Kames and Janus Henderson vehicles, as a result of "material uncertainty over [the] valuation of scheme property.

In a statement, an Aviva Investors spokesperson confirmed that investors had been informed that the fund had been suspended with immediate effect amid "challenging market circumstances, which are impacting the wider investment markets".

They added: "The independent valuer of the Aviva Investors UK Property Fund has expressed material uncertainty over their valuation of scheme property."

From 12pm yesterday (16 March) Kames, which has made the Financial Conduct Authority aware of the situation, began blocking any instructions to purchase, sell or switch shares or units in the funds under the management of Richard Peacock and Karen Fox.

Kames told investors: "The challenges in accurately pricing properties is an issue for the entire property investment sector. This is due to a number of specific events that have combined to increase the level of uncertainty in stock markets, which in turn has led to periods of significant selling as we have seen in recent weeks.

"Chief among these events is the ongoing coronavirus crisis, which I know is a real concern for all of us. At the same time, we have had to contend with a sharply lower oil price as well as the impact of the ongoing Brexit negotiations. These issues are affecting all areas of the stock market, including property investing."

As in previously seen fund suspensions, the fund manager told investors it will review the suspension every 28 days.

Commenting on the suspension further, Kames said that a "continued market volatility and uncertainly for property funds" since the 2016 Brexit referendum which has been exacerbated by the coronavirus outbreak "makes it difficult to provide a true value for the funds underlying assets".

It added: "These issues are affecting all areas of the investment market including equities, fixed income and property investing.

"During the suspension we will continue to provide investors with regular updates on developments."

Ryan Hughes, head of active portfolios at AJ Bell, said Kames' decision "highlights the problem of shoe-horning an illiquid asset class into a daily dealing structure".

He said: "At the end of February the fund was running with cash of around 11% but events have moved quickly in recent days making it difficult for independent valuers to make accurate valuations of the underlying properties.

"In line with FCA rules, this uncertainty over what the underlying assets are worth makes suspension inevitable in order to protect existing investors in the fund. It's also in line with our comments last year when we suggested rule changes would make suspensions more likely."

Hughes added that, given M&G Property Portfolio has been suspended since December last year, it "raises serious questions about whether we will see a chain-reaction effect and see other property funds suspending".

"This further reinforces the need for the FCA to make material changes to the daily pricing structure of property funds given the challenges that exist in the market when major uncertainty strikes," he warned.

This article was first published by Investment Week