Instead of suspending trading and implicitly disallowing redemptions, giant fund manager Aberdeen, also known as Domino #7 if the UK ok commercial real estate collapse, has forced investors in its UK Property fund to take a 17% haircut wiping hundreds of millions of dollars off its value. The fund stated that shareholders wishing to redeem will do so at a reduced price in order to reflect the current market environment and the fact that short term trading in the property market has “relatively penal consequences.”
Unlike similar asset freezes implemented by at least 6 other property funds in the past three days, Aberdeen has not only temporarily suspended trading in its £580m UK Property fund but has also slashed the price of the fund by 17%, and in doing so it has demonstrated just how massive the “liquidity mismatch” bid-ask gap is in times of stress. Trading in the fund, and the Aberdeen UK Property Feeder Unit Trust, has been suspended until 7 July at midday in order to allow shareholders who have placed trades have the option to withdraw if they wish. Those who persist in demanding their money will get 83 cents for every dollar.
Until this latest intervention, over half of the the £25bn in UK property sector assets had already been gated and frozen; thanks to Aberdeen we now also know that the fair value of such CRE property assets is about 20% lower.
Aberdeen company said the action has been taken due to rapidly changing commercial property market conditions and to continue to provide liquidity in the fund reflecting those conditions.
“Aberdeen’s property fund continues to hold a good level of cash, which permits us to offer these options to investors, but it is imperative that we protect remaining holders by fairly reflecting the impact of short term trading on values provided to redeeming shareholders. The property market itself may take some time to find its level but we believe that the same factors that made property a good long-term investment yesterday remain true today.”
And The Telegraph adds that Aberdeen’s chief executive Martin Gilbert said:
“We have worked hard to deliver realistic options to clients: redeem at a price which reflects the relatively penal impact of short term trading in the property market, or remain in the fund, protected by the anti-dilutive measures we are taking, and look through to the longer term fair value which we expect to be available in less pressured markets.”
He added: “Reducing the share price of the Fund reflects the changing market conditions over the past week or so and uncertainty around prices.”
He also sounded the ominous warning that “sellers requiring liquidity are having to market properties at sometimes significant discounts to their recent valuations”.
This will wipe out any gains in the fund…
Which makes us wonder – is all this post-Brexit selling because UK property prices are 20% over valued?
* * *
This was Domino #7 and by far the biggest one yet…
Domino #1: *STANDARD LIFE INV PROPERTY DROPS 15%; TRADING IN FUND SUSPENDED
In a stark flashback to the catalytic event that ultimately brought down Bear Stearns in 2008, and subsequently unleashed the greatest financial crisis in history, last night we reported that Standard Life, has been forced to stop retail investors selling out of one of the UK’s largest property funds for at least 28 days after rapid cash outflows were sparked by fears over falling real estate values.
As we further noted, citing an analyst, “given the outflows the sector seems to be experiencing, this could well put downward pressure on commercial property prices,” said Laith Khalaf, senior analyst at Hargreaves Lansdown. “The risk is this creates a vicious circle, and prompts more investors to dump property, until such time as sentiment stabilises.”
As we concluded, whie Brexit is not a Humpty Dumpty event, where all the Fed’s horses and all the Fed’s men can’t glue the eggshell back together, it is an event that forces investors to wake up and prepare their portfolios for the very real systemic risks ahead. And, indeed, if Standard Life was the first domino, moments ago the second domino also tumbled when as Bloomberg reported that Aviva Investors Property Trust is as of this moment “frozen” citing “extraordinary” market conditions.
Domino #2: *AVIVA SUSPENDS TRADING ON AVIVA INVESTORS PROPERTY TRUST
As the FT adds, Aviva Investments said it had prevented retail investors from selling out of its £1.8bn UK Property Trust since Monday afternoon.
Cited by Bloomberg, Aviva said in an email that “market circumstances, which are impacting the wider industry, have resulted in a lack of immediate liquidity” adding that “we have acted to safeguard the interests of all our investors by suspending dealing in the fund with immediate effect…. Suspension of dealing will give Aviva Investors greater control in managing cash flows and conducting orderly asset sales in order to meet our obligations to investors.”
Domino #3: *M&G SUSPENDS TRADING IN M&G PROPERTY PORTFOLIO FUND
As Bloomberg reports, M&G suspends trading in property portfolio, feeder funds, according to statement on website.
“Investor redemptions in the fund have risen markedly because of the high levels of uncertainty in the U.K. commercial property market since the outcome of the European Union referendum.
Redemptions have now reached a point where M&G believes it can best protect the interests of the funds’ shareholders by seeking a temporary suspension in trading.”
Henderson temporarily suspends all trading in the Henderson U.K. Property PAIF and the Henderson UK Property PAIF feeder funds to safeguard the interests of all investors, according to statement.Decision due to “exceptional liquidity pressures” after Brexit and recent suspension of other direct property funds
Domino #5: COLUMBIA THREADNEEDLE SUSPENDS PROPERTY FUND: FT
As The FT reports,
Columbia Threadneedle, the £323bn asset manager, has also confirmed it had suspended redemptions from its Threadneedle UK Property fund, blaming uncertainty in the UK property market following the referendum.
The company said in a statement:
We have not been immune to the recent trend of retail outflows from the sector and so far these requests have been met from the cash balance retained within the Threadneedle [fund].
However, it is expected that these requests to sell will continue for the time being due to uncertainty in the market following the UK referendum result, therefore the temporary suspension of dealings allows sufficient time for the orderly sale of assets, and protects the interests of all investors.
Domino #6: *CANADA LIFE SUSPENDS U.K. PROPERTY FUND, PA REPORTS
Canada Life said it suspended dealing in its £222 million property fund to “protect the interests of all investors in the property funds”.
It added in an alert to financial advisers: “We did not take this decision lightly as we understand how this may affect you and your clients. We will endeavour to lift the deferral as soon as practically possible.”
Canada Life said it would be deferring requests for withdrawals from its commercial property fund from 3pm on Tuesday, for up to six months.
Other firms are expected to follow suit as the investor exodus picks up.
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