Janus Henderson and Kames Capital suspend property funds; 'almost certain' all will follow
In the wake of the Kames suspension, Janus Henderson's £2bn UK Property PAIF has also been suspended as a result of "market uncertainty".
According to its website, despite a cash position the fund has maintained to meet a "reasonable" level of redemptions, the "significant market uncertainty" caused by the coronavirus pandemic has led to CBRE declaring "material uncertainty of valuations" in relation to all direct property assets owned by the fund.
As such, Janus Henderson has suspended dealing in both the fund and its feeder, with all requests received since noon on 16 March to be rejected.
With these recent updates, along with M&G's late 2019 suspension, almost £5bn of assets are now locked in suspended property funds, with "all open-ended property funds likely to suspend", according to Ryan Hughes, head of active portfolios at AJ Bell.
He added: "The suspension of the Kames Property Income fund has been swiftly followed by the Janus Henderson UK Property fund also suspending on the basis of material uncertainty over the valuation of UK commercial property.
"With independent valuers finding it impossible to accurately value property given the major economic uncertainty, there is little choice but to suspend dealing.
"With two of the largest independent valuers saying they cannot accurately determine the value of property, it is almost certain that all open-ended property funds will now have to suspend dealing.
"Investors will understandably find these closures distressing at such an uncertain time in markets. However, there is nothing they can do now but wait it out and hope that the suspensions do not drag on for too long."
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.
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.
Adrian Lowcock, head of personal investing at investment platform Willis Owen, said open-ended property funds seem to be suspending "more and more frequently".
"First, it was the Global Financial Crisis, then the EU referendum, general election and this time the black swan of coronavirus," he said.
"While this most recent crisis has hit almost every asset class and caused a sell-off in markets, it has hit property funds differently. This time it is the issue of valuing illiquid assets accurately, market volatility so high and economic outlook unclear, it makes it hard to value unlisted assets. This is a reminder to investors that the open-ended structure is increasingly unsuitable for illiquid assets."
He added: "Investment trusts are likely to face similar issues on valuations, but because they are listed investors can make their own valuation of the businesses and decide whether to sell or buy. Property funds are no longer functioning well in a world that wants daily dealing."
This article was first published on www.investmentweek.co.uk
