Property fund suspension strikes again – AJ Bell

by | Oct 12, 2022

Written by Ryan Hughes, head of investment partnerships at AJ Bell

Here we go again! News that the Columbia Threadneedle UK Property fund is suspending once again is a stark reminder that open-ended property remains totally unsuitable for daily traded investments.

It’s remarkable that this still needs to be said given this is the third time in the past six years that this situation has occurred.

The liquidity mismatch is clear for all to see, and the highly volatile conditions currently being witnessed in markets exacerbates that risk when investors take flight and look to liquidate assets quickly. Property managers are then forced to sell into an unstable market, where buyers will be highly selective in the assets they want to purchase, creating a situation which puts the buyer in poll position to dictate the price.

The challenges in the sector are also evident in the listed property space where REITs currently trade at significant discounts, which is essentially the trade off for offering liquidity. With the economic outlook challenged it remains to be seen whether this discount is an opportunity, or whether NAVs will ultimately fall towards the discount.

We still await the outcome of the FCA’s review into the dealing frequency of open-ended property funds, with the original proposal of a 180 day notice period first being proposed back in August 2020. Over two years later we appear to be no further forward, with existing investors still left in limbo and the sector essentially uninvestable given the material uncertainty surrounding the redemption terms.

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