Jul 07

dominoes falling

As Redemption “Panic” Accelerates, Two More UK Property Funds Slash Value Of Their Property Assets:

Here come dominoes #8 and #9.

As we reported yesterday in the latest twist of the post-Brexit “falling dominoes” where UK property funds have frozen assets and suspended redemptions, which has so far seen over half of the the £25bn in UK property sector suspend trading including such names as M&G Investments, Standard Life and Threadneedle, UK’s asset management giant Aberdeen not only halted redemption requests, but triggered a 17% cut to its asset values for anyone who wants to withdraw their money.

This idea appears to have struck a chord with the rest of the country’s “liquidity-challenged” asset managers, and overnight two more fund proceeded to “cut” the value of their property fund assets.

As Reuters reports, Legal & General’s fund arm and F&C Investments both cut the value of their UK property funds on Thursday, as the industry seeks to stem a tide of redemption requests since Britain’s vote to leave the European Union.

The move to cut the value of the fund is a less extreme method of controlling redemptions, as it effectively forces those looking to leave to accept a lower price than was established the last time the property portfolio was valued.

Legal & General Investment Management, the fund arm of insurer Legal & General, said it had cut the value of its 2.3 billion pounds UK Property Fund by a further 10%, after a previous 5% valuation cut. This means that anyone who wants access to their money right now will have to accept a 15% haircut.

“At this time it is still difficult to predict the exact impact of the vote to leave and subsequent market events on commercial property values,” LGIM said in a statement.

In a less drastic move, F&C, part of the fund arm of Bank of Montreal, said it had cut the value of its 305 million pound UK Property Fund by 5% as part of a move to fair value pricing.

“The level of redemption requests we have recently received and market conditions suggest that investors may place further redemptions; leading to downward pressure on realisable property values,” it said on its website.

“The move to fair value pricing for the Fund means we may make adjustments to the valuation of its property assets to ensure that they are priced at a level which, in our opinion, reflects a fair and reasonable price for those assets.”

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Meanwhile, the fund that proposed the novel solution to dissuade redemptions appears to be experiencing mixed success: as Reuters adds, Aberdeen Asset management extended the suspension period for its 3.2 billion pound ($4.17 billion) Aberdeen UK Property Fund to Monday July 11, it said on Thursday.

The fund manager suspended the fund for 24 hours on Wednesday and cut its value by 17 percent.

“Investors who placed trades yesterday have asked for more time to consider whether to withdraw their redemptions,” Aberdeen chief executive Martin Gilbert said in a statement.

Aberdeen’s fund is the seventh UK property fund targeted at retail investors to have suspended trading this week. The funds together have over 18 billion pounds in funds under management.

What the above really says is that despite attempts at dissuading investors, the fund is still suffering a surge in redemption requests and as a result the suspension period continues which prevents investors from receiving their funds until next week. We are confident that this means that Aberdeen will likely have to implement even more aggressive haircuts now that its initial “bid” has failed, or simply extend the freeze indefinitely like most of its peers as billions in assets remain inaccessible for tens of thousands of investors.

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