Investors fled UK property funds at the tail-end of the week faster than at any point this year as concerns brew over a repeat of the crisis that engulfed the sector following the EU referendum.
Almost £57m was pulled from property funds on Thursday, the worst day all year for real estate fund outflows, according to Calastone, a global funds transaction network. The redemptions came after M&G, the UK asset manager, announced it was halting trading in its £2.5bn real estate product.
The large-scale redemptions on Thursday are the clearest sign yet that rival property funds are suffering in the wake of M&G’s decision to gate its fund on Wednesday. The outflows echo 2016 when investors, anxious about the outcome of the Brexit vote, quickly pulled cash over fears they could be locked in their investments, spurring a domino effect of property fund suspensions.
Edward Glyn, head of global markets at Calastone, said that “fears of further fund suspensions have spooked investors in property funds” this week.
“Investor reaction is understandable though counterproductive as it may result in a self-fulfilling prophecy [of funds being forced to close].”
He added: “Investors should be mindful that property is a long-term investment, and buildings are not ATMs dispensing cash. If you think you need rapid access to your savings, there may be other, more suitable savings products you should consider first.”
According to figures from Morningstar, the data provider, investors have pulled more than £1.5bn from open-ended UK property funds in the year to date, more than in the whole of 2016.
Edward Park, deputy chief investment officer of Brooks Macdonald, a wealth manager, said that unlike in 2016, there was no clear catalyst for the wave of redemptions in property funds this year.
Mr Park said Brooks Macdonald sold out of open-ended property funds in 2016 over concerns about a liquidity mismatch. Such funds allow investors to redeem cash daily, despite holding assets that can take months and years to sell.
“There is a fundamental mismatch between bricks and mortar, and offering daily dealing,” said Mr Park. “If gating becomes more rife, I think the regulator will feel that it has to act.”
According to research from February 2019 from Fitch Ratings, average liquidity levels in UK commercial real estate funds had not materially increased since mid-2016. But some funds, including a large product from Standard Life Aberdeen, held more than 10 per cent in cash at the end of November.
Fitch Ratings said: “We expect increased focus from investors on fund liquidity positions, including cash on hand and readily marketable securities, such as government bonds.”
Outflows from property funds accelerated in November, with £251m in redemptions, up from £208m in October, according to figures from Calastone. The sector has had 14 consecutive months of outflows.