EU vote forces SLI to suspend trading on £2.7bn property fund

​Standard Life Investments has suspended trading on its £2.7bn UK real estate fund.

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Jul 05, 2016

Standard Life Investments has suspended trading on its £2.7bn UK real estate fund.

The asset manager says it halted trading on the Standard Life Investments UK Real Estate Fund and its associated feeder funds at noon yesterday.

The suspension will last for at least 28 days and will remain in place until it is “practicable” to lift it, with the decision being reviewed at least every 28 days.

SLI said the move has been taken in response to a rise in redemption requests “as a result of uncertainty for the UK commercial real estate market following the EU referendum result”.

“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,” a spokesperson from SLI says.

The SLI fund has lower risk positioning, which should benefit investors, the spokesperson says. The fund had £2.9bn in assets at the end of May, with 13 per cent in cash. However, the liquidity mismatch between the fund and the assets it holds is leading to concerns.

The spokesperson says: “Unlike investing in equities, the selling process for real estate can be lengthy as the fund manager needs to offer assets for sale, find prospective buyers, secure the best price and complete the legal transaction.

“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.”

SLI had already imposed a 5 per cent valuation adjustment on the UK Real Estate fund, amid post-Brexit uncertainty about property prices.

The manager was not alone, with last week seeing Aberdeen impose a 3.75 per cent fair value adjustment on the £3.4bn Aberdeen UK Property Paif and feeder fund, and Henderson adding a 4 per cent adjustment to the £4bn UK Property fund.

At the time an SLI spokesperson said: “The outcome of the UK referendum has resulted in increased uncertainty in valuations for the UK commercial property market and we believe that valuations have been negatively impacted.”

Hargreaves Lansdown senior analyst Laith Khalaf says: "Property funds are clearly under pressure as a result of the Brexit vote, and we could now see a new wave of investors being unable to liquidate their property funds quickly, which we last witnessed during the financial crisis.

"This is part of the problem with investing in open-ended property funds, and one of the reasons we don’t recommend them to investors. Property does offer diversification, and a reasonable yield compared to government bonds, but investors must be willing to accept high costs, and a lack of liquidity when the market turns down."

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