Three UK asset managers have mentioned they’re unable to deal with heavy demand from traders searching for to withdraw from property funds, in one other signal of how an accelerating decline in authorities bond costs is forcing pension funds to reallocate holdings.
Schroders mentioned it’ll make some redemptions initially due on Monday as late as July subsequent yr, whereas Columbia Threadneedle mentioned unstable market circumstances had pressured it to modify from every day to month-to-month payouts. At the identical time, BlackRock additionally imposed new restrictions on withdrawals.
This as soon as once more highlights how funds primarily based on hard-to-sell property battle when the volatility that has stalked shares and bond markets all yr pushes traders to demand money again in a rush.
A liquidity disaster within the UK final week, sparked by plunging gilts costs, has worsened the state of affairs for some asset managers, with defined-benefit pension schemes, that are main traders in UK institutional actual property funds, quickly promoting a broad vary of property to fulfill calls for for collateral.
“It’s a fairly feeble market and you’ve thrown in some volatility. Shifting to monthly redemptions [from daily] reduces your need to firesale assets,” mentioned one adviser to property funds.
Calum Mackenzie, funding accomplice with Aon, the pension consultants, added, “I think this is part of a longer-term trend by pension funds to [cut risk] by selling off the less liquid assets . . . This trend is now being exacerbated by last week’s short-term liquidity rush by pension funds.”
UK pension funds have been chopping actual property holdings for a number of months as rising rates of interest and slowing exercise have weighed on the property market. Tumbling costs of UK authorities debt have additionally elevated the proportion of funds’ portfolios in actual property, prompting some to scale back their publicity.
These forces have intensified at a degree when circumstances in non-public markets together with fairness, actual property and credit score, are already fraught. A pointy deterioration in lending circumstances has made it troublesome to get offers completed in unlisted property, in keeping with business individuals.
The £2.7bn Schroders Capital UK Real Estate fund obtained redemption requests price £65.3mn within the second quarter of this yr, which have been as a result of be paid by October 3. Schroders has paid £7.8mn in direction of assembly the withdrawal requests and mentioned the excellent steadiness could be deferred till “on or before” July 3 subsequent yr, in step with guidelines that permit it to push again redemption requests 24 months.
“It is expected that the deferred redemptions will be paid following successful completion of future asset disposals,” mentioned Schroders.
It is within the technique of promoting Jubilee House, a tower block redevelopment in Stratford, east London, that it purchased in 2013 for £11.9mn. Schroders has signed a contract to promote it for £63mn in a deal that’s anticipated to be accomplished by April 2023.
Columbia Threadneedle has additionally launched new preparations for redemptions for the £2.3bn Threadneedle Pensions Pooled Property fund, which suggests traders will be capable of make withdrawals on a month-to-month foundation slightly than every day, citing “liquidity constraints resulting from the recent market volatility and a subsequent increase in redemption requests”.
BlackRock, the world’s largest asset supervisor, has additionally imposed redemption restrictions on the £3.5bn BlackRock UK Property fund after receiving vital withdrawal requests within the second quarter.
These restrictions echo earlier crises when asset managers imposed “gates” to forestall traders from making withdrawals from every day traded property funds within the wake of the Brexit vote and through the early months of the coronavirus pandemic in 2020. In each of these cases, professionals valuing property held by the fund struggled to place an correct worth on business actual property initiatives.
Source: www.ft.com