Several companies including Standard Life Investments, Aviva Investors, M&G, Henderson Global Investors and Columbia Threadneedle suspended trading in their UK property funds last week due to high redemptions levels stemming from the uncertainty following the UK’s vote to leave the EU.
Since then, fears have been raised that the risk of a ‘contagion effect’ is much greater than initially thought, as a large amount of funds have percentages of their holdings in other property funds.
“The concept of open-ended property funds with daily, or even monthly, liquidity is absurd, given the illiquidity of bricks and mortar investments,” said Richard Parfect, a fund manager at Seneca IM.
According to Parfect, Seneca’s multi-asset funds are not allowed to invest in such property funds and even if they could, he would choose not to.
“There are clear ramifications for any multi-asset fund holding such vehicles,” he said. “But then there may also be ramifications for other asset classes such as equities and bonds if these multi-asset funds receive redemptions and are forced to fund them from areas other than their gated property funds.”