Two UK Commercial Real Estate Funds Shut Permanently, Investors Trapped, as Sector-Wide Exodus Intensifies

The comments below are an edited and abridged synopsis of an article by Nick Corbishley

Aegon Asset Management has closed two of its feeder funds after struggling to raise sufficient cash to meet redemption requests (one fund had £380 million in AUM and the other had £150 million). The announcement follows a move by Aviva to wind up its property fund and two feeder funds due to economic uncertainty and liquidity concerns.

Two UK Commercial Real Estate Funds Shut Permanently, Investors Trapped, as Sector-Wide Exodus Intensifies | BullionBuzz | Nick's Top Six
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Aegon and Aviva were suspended in March 2020, along with other property mutual funds, due to uncertainty over market valuations caused by Covid-19 and liquidity issues. Many of these funds are open-end, offering daily withdrawals to investors, even though the funds’ core investments are illiquid, often taking months to offload.

Trapped investors will have to wait up to two years to be reunited with their funds. If the recent experience of other gated funds is any indication, by that time investors may find the value of their investment has significantly shrunk.

Many of the property funds that did reopen are suffering an exodus. The worst month for outflows was March 2021 when £589 million was withdrawn, compared with £314 million in February and £128 million in January.

Fears about Covid’s delta variant may have hurt sentiment in a sector that has already been upended by endless lockdowns, travel restrictions and work-from-home ordinances.

Retail tenants are not paying their rent, partly because a government moratorium means they don’t have to. Many offices are still half empty and will stay that way until guidelines urging people to work from home are withdrawn.

The UK’s property fund industry has shed £5.6 billion after 32 consecutive months of net outflows.

The industry’s structure is in question. The fundamental issue: A mismatch between the daily liquidity they offer and the illiquidity of most of the assets they hold. The Financial Conduct Authority has proposed replacing the daily redemption notice period with notice of up to six months to prevent funds seizing up as investors exit in times of market turmoil.

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