More UK property funds suspend trading due to coronavirus volatility
LONDON, March 18 (Reuters) – Four more UK property funds suspended trading on Wednesday after managers said valuers could no longer be confident in assigning values to commercial real estate such as shops, offices and industrial property as the coronavirus outbreak gathers pace.
Kames Capital and Janus Henderson announced on Tuesday they were suspending their open-ended property funds, with Aviva, Columbia Threadneedle, Standard Life Investments, and Legal & General following suit on Wednesday.
The Financial Conduct Authority, which regulates the sector, said it expected more funds to follow suit after valuers reported “material uncertainty” over commercial real estate (CRE) values.
“In such situations, a fair and reasonable valuation of CRE funds cannot be established,” the FCA said in a statement.
“As a result, some managers of open-ended CRE funds have temporarily suspended dealing in units of these funds and others are likely to follow for the same reason.”
The Association of Real Estate Funds (AREF) also urged its members to suspend property funds if they cannot properly assess the value of the assets they hold.
“Investing in UK property is an investment in hotels, offices, shops, warehouses, and restaurants up and down the country,” said AREF’s managing director Paul Richards.
Ben Elder, International Director for Valuation at the Royal Institution of Chartered Surveyors, whose members carry out property valuations, said market circumstances were “unprecedented” and that RICS would issue guidelines to members looking to declaring “material uncertainty” over pricing.
“The effects of the COVID-19 virus will affect the work carried out by RICS Regulated Firms and Members in a variety of ways, with varying impacts,” Elder said.
“Inspecting property may be difficult and access to evidential data, such as comparables, less freely available.”
The British government this week urged people to avoid restaurants and other public places to avoid catching the virus, which has crippled the global economy and forced governments to put millions of people in quarantine.
Some hotels are being prepared for use as makeshift hospitals to cope with the anticipated numbers of sick people.
“Under these conditions property funds need to suspend while this extraordinary situation lasts, in order to ensure that investors, mostly long-term pension savers, are protected,” Richards said.
“Strict FCA regulations apply, in order to ensure that all investors are treated fairly.”
The last time property funds were suspended en masse was in the immediate aftermath of Britain’s referendum vote in June 2016 to leave the European Union.
Funds were unable to meet their promises of daily redemptions for investors who wanted to exit given the time it typically takes to sell real estate and to raise the cash.
The Bank of England and the FCA are working on new rules to better match a fund’s assets to its redemption periods. This is broadly expected to spell the end of daily trading in property funds.
“With the FCA continuing to look at the appropriateness of illiquid assets in daily traded funds, surely this must spell the end of such structures to avoid damaging the confidence of investors in the funds industry,” said Ryan Hughes, head of active portfolios at AJ Bell.
(By Huw Jones, Simon Jessop and Sinead Cruise)
(Editing by Mark Heinrich)
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