Property fund update

Following the significant increase in volatility in financial markets related to the coronavirus outbreak, there has been an increase in pressure on all asset classes including the UK commercial property sector.

UK commercial property funds have struggled to provide accurate valuations of their assets and therefore the fund management groups have taken action to protect the interests of existing investors. All physical property funds have been forced into this position because commercial property valuers have declared a ‘material uncertainty’ about the value of the properties held within them, reflecting the unprecedented ramifications of the global Covid-19 outbreak. Material uncertainty is a technical tool that is available to RICS registered valuers of commercial property (FCA rules under Coll 7.2 and Policy Statement 19/24 allow provision for this decision as long as the material uncertainty relates to at least 20% of the underlying assets). It can be used to qualify asset valuations in markets where there is considerable uncertainty due to unforeseen financial, macro-economic, legal, political or even natural events.This is different to recent previous suspensions caused by outflows from funds.

As a consequence, Aberdeen, Aviva, Janus Henderson, BMO, Standard Life, Legal & General and Threadneedle have all suspended dealing on their mainstream UK commercial property funds (and their associated Feeder funds) along with M&G which was previously suspended. Investors will not be able to access or sell out of the funds until the suspensions are lifted. The suspensions will be reviewed regularly - formally this is every 28 days - in reality however this is likely to be undertaken much more frequently.

The current position is:

RSMR

18 March 2020

This information is for UK Professional Advisers only and should not be given to retail clients.The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

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