interactive investor comments on a confidence crisis and property funds

A more than decade-old problem re-emerges, says Myron Jobson.

Liquidity has been back in the spotlight for UK property funds, and this week it became apparent that private investors could get dragged in again.

Only recently, three UK fund groups managing property funds began imposing new restrictions on large “institutional” investors, such as pension funds, with the industry seeing payouts switch to monthly rather than daily.

But the suspension of the Columbia Threadneedle UK Property fund has raised the stakes for private investors. And it’s only a year and a half since another high profile open-ended property fund, M&G Property Portfolio and its feeder fund, came out of deep freeze and reopened. Another crisis of confidence is sadly here.

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Dzmitry Lipski, Head of Funds Research, interactive investor, says:“It’s sad to see a more than decade-old problem continue to repeat as we see another crisis of confidence. With the ice barely thawed after one high-profile property fund came out of deep freeze just a year and a half ago, we now see another suspension - Columbia Threadneedle UK Property Fund.

“The pressure is mounting for the industry to find a solution to this perennial problem. The FCA hope that the liquidity mismatch that exists with open-ended property funds can be solved by fixed redemption periods. Perhaps they can, although we think the redemption period should be fixed, so as not to cause confusion for investors, and significantly long enough to ensure there is time to address the liquidity mismatch – and that would be far longer than the mooted period of up to 180 days.

“But a liquidity problem is also a confidence problem. Investors who have been stung by property fund suspensions could be forgiven for avoiding open-ended property funds in the future on the basis of ‘Fool me once, shame on you. Fool me twice, shame on me’.

“Property can be an excellent diversifier for those with a long-term view – but finding the right structure is crucial. The long-term fundamental case for property as an asset class remains intact and history shows that real assets such as property outperform traditional asset classes during high inflation environments.

“We continue to favour the closed-ended structure when it comes to direct property investments, and we like Super 60-rated Balanced Commercial Property (LSE:BCPT) Trust and TR Property (LSE:TRY). The closed-ended sector is also where our customers looking at property tend to hunt – in fact, we have more than 10 times more customers in those two investment trusts than we have in the entire UK direct open-ended funds sector combined.”