Liquidity Crunch Mangles UK Equity & Real Estate Funds

Exodus from funds with illiquid assets forces more funds to block redemptions

Equity and property funds in the UK saw withdrawals of £2.5 billion in July, taking total outflows in 2019 so far to £12.4 billion, according to Morning Star data. Equity funds, with total assets of £691 billion, were down £1.6 billion in July and £10.6 billion so far this year. In a broad flight to safety, money market funds experienced their sixth consecutive month of inflows while investors poured £428 million into Fixed Income funds.

Morning Star analysts blamed the outflows from equity and property funds on fears over a UK recession and a no-deal Brexit. But there’s also a structural element at work: the mismatch in open-ended equity and property funds that offer investors daily redemptions while investing in assets that can take weeks or months to sell.

Few funds are as illiquid by nature as commercial property funds, which suffered £2.2 billion of outflows in the first seven months of this year. Just two funds — M&G Property Portfolio and Aberdeen UK Property — accounted for 89% of the £417 million of outflows in July.

“The prices of commercial property – which accounts for most of these funds’ investments – are heavily influenced by the macro environment and if investors believe a downturn is ahead, they are less likely to invest in property funds,” said Morningstar analyst Bhavik Parekh.

Continue reading the article on Wolf Street

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