The sector was already hit hard by Brexit, then by lockdowns, and now by working from home as companies plan to cut floor space.
Aegon Asset Management has closed its UK Property Income and Property Income feeder funds, after struggling to raise sufficient cash to meet redemption requests, it said on Wednesday. The Aegon Property Income fund had £380 million ($531 million) in assets under management and the feeder fund £150 million, according to Morningstar. The announcement follows a move last month by Aviva to wind up its property fund and two feeder funds due to the prevailing economic uncertainty and liquidity concerns.
Both the Aegon and Aviva funds were suspended in March 2020, alongside most other UK property mutual funds, due to the acute uncertainty over market valuations caused by the virus crisis as well as liquidity issues. Many of these funds are open-end, meaning they offer daily withdrawals to their (predominantly retail) investors, even though the funds’ core investment — offices, industrial property and retail parks — is extremely illiquid, often taking months to offload.
In times of financial stress and uncertainty, it’s not unusual for real estate to be plagued by acute liquidity issues. In June 2016, in the aftermath of the Brexit vote, six commercial real estate (CRE) funds suspended redemptions. But never before have so many real estate funds shut the doors on so many real estate investors. Since then most of the funds have reopened, although conditions remain tough. But neither Aegon or Aviva were among them. Their doors are staying shut.
“It has proved increasingly challenging to raise sufficient liquidity whilst also ensuring that continuing investors have a representative and well-balanced portfolio,” Aegon AM said in a statement. “In order to ensure all investors are treated fairly, Aegon AM has decided to take steps to close the funds and return the proceeds to investors as quickly as possible, in a fair and orderly manner.”
Trapped investors will have to wait up to two years to be reunited with their funds. If the recent experience of other gated (and eventually wound down) funds is any indication, by that time the investors may find that the value of their investment has significantly shrunk.
Many of the property funds that did reopen are now suffering an exodus…
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Nick Corbishley 