UK property funds have suffered their worst week of redemptions since the 2016 Brexit vote after investors pulled out almost £200m following the suspension of an M&G portfolio.
A net £193m has been withdrawn from daily-traded property funds since the M&G fund was blocked a week ago, far ahead of the average monthly redemption of £176m since outflows ramped up 14 months ago, according to data from Calastone, the global fund transaction network.
Property funds have been hit with a wave of redemptions this year as investors fret about the risks of a hard Brexit, the outcome of Britain’s general election and the outlook for the UK property market.
M&G announced last week that it was gating its fund, sparking fears of a repeat of a crisis that engulfed the sector after the Brexit vote when a wave of withdrawal requests created a domino effect of property fund suspensions.
Edward Glyn, head of global markets at Calastone, said: “The outflows from property funds are the worst since the immediate aftermath of the Brexit referendum, making the current flurry the second worst week we have on record for the sector.”
Some £250m was redeemed from property funds in the week following the UK’s vote to leave the EU, forcing funds run by groups including Aviva, Columbia Threadneedle and M&G to halt trading.
Mr Glyn said: “Funds are better prepared this time. They are holding a lot more cash, and are in constant communication with the regulator, but there’s no doubt the latest rush for the exit is putting funds under a lot of pressure to suspend trading.”
Ian Sayers, chief executive of the Association of Investment Companies, the trade body for closed-ended funds, said: “When a fund suspends, you start to see people getting worried and selling out of other funds to avoid getting trapped.
“But it can become a self-fulfilling prophecy: the greater the fear of suspension, the more likely suspension becomes.”
The £1.3bn Aberdeen UK Property fund was particularly badly hit in the days after the M&G suspension, bleeding a net £70m, according to figures from Morningstar, the data provider. Financial Times calculations show the fund had an estimated £190m in cash at the end of November, which the recent redemptions will have reduced to £120m, not taking into account any property sales in the interim.
Janus Henderson’s £2.1bn UK Property fund also experienced a surge in redemptions in the past week. The fund’s cash pile was £389m at the end of November but it lost a net £32m in six days, compared with £42m over the previous three months combined.
According to Calastone, outflows from property funds were largest last Thursday — the day after the M&G suspension — when investors pulled £60m. By Tuesday, outflows had fallen to £23.7m, but increased slightly on Wednesday with investors taking a net £26.3m from property funds.
“The worst may already be over. We saw outflows drop sharply on Tuesday, and though we expect them to continue, there are signs they are dropping to levels funds will find more manageable,” Mr Glyn said.
Property funds sold off many of their London assets — generally the easiest to sell — during the 2016 wave of redemptions: the Aberdeen fund sold an office building at 10 Hammersmith Grove to private equity investors Brockton Capital for £85m, for example.
But sales like this mean the major property funds now have few or no London assets that can be quickly sold to meet redemptions, property agents said.
A sluggish market for retail property has left some with outsized weightings to the troubled sector, which has faced a wave of high-street failures. The Aberdeen UK Property fund has 49.5 per cent in retail, though it is seeking to sell its largest single asset, the Moor shopping centre in Sheffield.