12 October 2022
If you are covering the suspension of Columbia Threadneedle’s UK property fund, please see the following comment from Oli Creasy, property research analyst at Quilter Cheviot:
"What we are seeing is round two of UK property fund trading suspensions. The first round was specific to the funds that had significant pension exposure, and was more of an isolated issue. However, what we are seeing today looks more like a general UK property market issue and the main Columbia Threadneedle (CT) UK property fund was suspended for redemptions until further notice.
"Whether this precipitates other UK property fund suspensions across the industry is yet to be seen. But it is worth bearing in mind that this fund is relatively small at only £484m in size as of 31st August. For context, the biggest property fund in the market, L&G, is about £2 billion in size, so the CT fund is relatively small in comparison. It also had only 2.8% of its assets in cash which is a dangerously small number, and heightens the risk of suspension. The industry standard is about 15-20% in cash which means that a fund can handle most request for funds back.
"However, we believe that the CT fund managers will not have wanted to be at that level of assets in cash but were simply struggling to keep up with the pace of redemptions. One of the questions that the fund manager will have to answer is will it open up again? If investors do not withdraw redemption requests, and the value of the properties held in the fund falls due to interest rate rises, the fund could be substantially smaller than the current £484m by the time of re-opening. A fund below that level begs the question whether it would be better to explore winding it up and returning cash to shareholders, as some will argue the fund is simply too small to justify its existence. Investors should prepare themselves for the possibility that all assets are returned as cash rather than the fund reopening – something that has happened in the recent past with Janus Henderson and Aegon property funds.
"The question on investor’s lips will be whether other funds are also facing the risk of suspension? The answer is maybe; there have been instances in the past when contagion has gripped this market, however, it isn’t always the case. Some of the other funds in the market are better-capitalised (for example, L&G had >15% in cash as of 31/08/22) and therefore may be better positioned to cope with further redemptions."
