July 1, 2016 / 8:56 AM / 3 years ago

Property funds try to protect themselves against Brexit fallout

LONDON (Reuters) - Some of Britain’s biggest property funds have cut the estimated value of their holdings, aiming to deter investors from pulling money out amid speculation the country’s decision to quit the European Union could hit commercial real estate prices.

Several funds have also switched to pricing units in their funds on a weekly - rather than a monthly - basis, in a further move aimed at protecting themselves against market volatility.

So far, funds have not reported a big rise in withdrawals in any of the major asset classes, despite big swings in financial markets following Britain’s decision in a June 23 referendum to quit the EU.

But with many commentators predicting a drop in demand for renting commercial real estate, several property funds have moved to cut the value of their holdings as a precaution.

Standard Life Investments, the fund arm of insurer Standard Life, said it had reduced the value of its 2.7 billion pound ($3.6 billion) Standard Life Investments UK Real Estate Fund and Standard Life Investments Pooled Pension Property Fund by 5 percent.

“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,” a Standard Life Investments spokesperson said.

Henderson Global Investors, meanwhile, said it had moved to weekly pricing and cut the value of its Henderson UK Property PAIF and Feeder Fund by 4 percent; while M&G, the fund arm of insurer Prudential, also said it would price its 4.5 billion pound Property Portfolio weekly.

On Tuesday, Aberdeen Asset Management, which manages 20 billion pounds across its property funds, cut the value of its 3.4 billion pound Aberdeen UK Property PAIF and Feeder Fund by 5 percent.

Funds of all stripes stockpiled cash ahead of the referendum to manage any surge in redemptions - Aberdeen’s UK Property fund has 20 percent in cash - though there has been little sign of a big rise in withdrawals so far.

Even so, fund managers said pre-emptive moves such as valuation adjustments made sense in an illiquid asset class such as property.

“They (retail funds) are erring on the side of caution. What they’ve done is sensible, given the big blow to confidence and lack of liquidity in the market,” said Adrian Benedict, Real Estate Director at Fidelity International.

An open-ended retail fund lets investors move in and out of the fund on a daily basis and can require the fund’s assets to be sold to meet demands to exit, as opposed to a closed-ended fund, in which investors buy and sell listed shares.

In volatile markets like these, managers said it could be hard to get a daily price accurate enough to ensure investors who wanted to leave were not winning at the expense of those who remained in a fund.

Benedict said Fidelity, which manages $1 billion across two funds, had seen little sign of concern among longer-term institutional investors, did not expect much forced selling of properties and could even see increased interest from overseas buyers looking to profit from the sliding value of the pound.


While the pound has fallen more than 10 percent against the dollar since the referendum, Britain’s blue-chip equities index is down a more modest 2 percent.

“We are not seeing much evidence of investor panic at this stage, more a trimming down of risk exposure,” said Greg Jones, managing director of distribution at Henderson Global Investors, referring to investments across asset classes.

“We are also experiencing demand for strategies seen as far removed from EU troubles such as emerging markets,” he added.

Fund performance after the vote has been extremely varied, data from industry tracker Morningstar show.

The worst-hit UK fund has been Standard Life Investments’ 1 billion pound UK Equity Unconstrained fund, down 17.1 percent, according to Morningstar, followed by the 1.6 billion pound Jupiter UK Growth fund, down 14 percent.

At the other end of the scale are a clutch of precious metals-focused funds, including BlackRock Gold and General, up 17.8 percent.

($1 = 0.7461 pounds)

Additional reporting by Carolyn Cohn; Graphic by Jiachaun Wu; Editing by Sinead Cruise and Mark Potter

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