3 March 2022
If you are covering the press speculation that the Janus Henderson property fund could be sold, please find below a comment from Oli Creasey, property research analyst at Quilter Cheviot:
“Recent press reports suggest that the Janus Henderson UK Property PAIF is considering being wound up. If true, it would come as something of a surprise, as the fund has made it through the difficult period in 2020 when it was forced to close by new FCA rules, and has since produced good returns: +12.4% in the 12 months to Jan-22, which was well ahead of the peer group.
“That said, those returns are good, not great, and we note that the MSCI IPD property index was up +14.8% over the same 12 months. This underperformance has been a perennial problem for property funds, which are generally expected to carry a cash weighting of 15-20% to manage possible redemptions. This is a significant drag on performance, particularly in rising markets. Similarly, there are costs to owning and trading property that do not feature in the benchmarks, notably 5% stamp duty payable on most commercial property. It is worth noting that had the JH fund been 100% exposed to property, it is likely to have marginally outperformed the index (though that would have meant taking unacceptable liquidity risks).
“It is impossible to say exactly what has prompted this decision to wind up the fund, if true. The performance figures, and size of the fund (£1.04bn at Jan-22) are not remarkable, but nor are they remarkably bad. The Aegon fund, which announced its liquidation in 2021, was expected to have AuM of just £250m once all pending redemptions had been satisfied, and such small size did appear vulnerable, making it difficult to diversify across many different properties (and property types), and unable to trade in larger assets at all. However, these limitations would not have been such an issue for the JH fund at just over £1bn.
“If £1bn is a limit below which open-ended property funds find it difficult to operate, then JH will not be the only manager considering their options. The Columbia Threadneedle fund has a £600m portfolio (Jan-22) and has delivered lower returns than the JH fund. Likewise the M&G fund, which is also around £1bn (Jan-22) in size. The merger between Aberdeen and Standard Life’s funds has resulted in a £1.6bn portfolio (Jan-22) which has better long-term prospects, and the highly-rated L&G fund has over £2.3bn of assets, making it arguably the most secure. L&G’s fund is also the only one to have outperformed IPD over the past year, with +18.2% returns in the 12 months to Jan-22.
“Investors in the JH fund may be wondering what to do next? The temptation in this situation is to submit a redemption request asap and try and beat the crowd. While we sympathise with that approach, it may not be in investors’ best interests. Liquidity could well be a concern in the coming months, particularly if other investors rush for the exit, but the asset sales may not prove to be a particularly long process anyway. We note that the JH portfolio appears relatively attractive, with over 40% of the property classified as industrial, with a further 8% in retail parks which are once again proving popular with investors. The fund has very little (<2%) of traditional retail exposure and if the properties are put up for sale, individually or as a single portfolio, it is quite possible that they could be sold promptly and potentially at a premium to the fund’s valuation, representing possible upside for investors willing to wait and see.”
