Aviva, Janus Henderson and Kames suspend property funds amid coronavirus market panic

Kames Capital, Janus Henderson and Aviva Investors have suspended trading on their respective open-ended property funds due to valuation uncertainty as markets continue to be rocked by the coronavirus panic.

The groups join M&G which suspended its £2.3billion Property Portfolio at the end of last year due to liquidity concerns, however the most recent closures have been attributed to the Covid-19 virus which has hit markets across the globe.

In its official statement, Aviva Investors – the most recent to announce the suspension of its £460million UK Property fund – said the coronavirus has ‘impacted the UK property market and made it difficult to value the property owned by the funds with the same degree of certainty as would otherwise be the case’. 

As a result, its standing independent valuer (SIV)  advised the group that there is currently ‘material valuation uncertainty’ for all direct property assets within the portfolio, and so dealing in the fund will be suspended with effect from the midday valuation point today. 

Kames Capital, which was the first to gate its £585million Property Income fund yesterday due to current ‘turbulent market conditions’ cause by the coronavirus released a similar statement, saying its SIV CBRE had decided it could not accurately price the holdings within the fund and so made the recommendation to close.

The group added: ‘The challenges in accurately pricing properties is an issue for the entire property investment sector. This is due to a number of specific events that have combined to increase the level of uncertainty in stock markets, which in turn has led to periods of significant selling as we have seen in recent weeks.

‘Chief among these events is the ongoing coronavirus crisis, which is a real concern for all of us. At the same time, we have had to contend with a sharply lower oil price as well as the impact of the ongoing Brexit negotiations. These issues are affecting all areas of the stock market, including property investing.’

In the wake of Kames’ closure, Janus Henderson announced the same fate for its £1.9billion UK Property PAIF this morning. 

According to its website, despite a cash position the fund has maintained to meet a ‘reasonable’ level of redemptions, the ‘significant market uncertainty’ caused by the coronavirus pandemic led to its valuer to also declare an uncertainty over valuations.

The last time UK open-ended property fund closures took place at such an extreme level was following the EU referendum vote in 2016 due to uncertainty and mass redemptions.

However it is important to remember that on this occasion, the suspensions are not due to redemptions or liquidity issues but because the independent valuers are unable to accurately assess the value of properties in these unprecedented times. 

With these recent closures, along with M&G’s late 2019 suspension, around £5billion worth of assets are now locked in suspended property funds, and industry experts believe others will follow suit very soon. 

Jason Hollands of Tilney said: ‘I doubt these will be the last open-ended property funds to suspend dealing given uncertainties around pricing in the current environment and the likelihood of significant redemption requests.

‘In these turbulent times for stock markets, physical property funds are under pressure given both bearish sentiment and also the potential for an increase in vacancies should some tenants go bust in the current economic squeeze. 

‘The shock of the coronavirus crisis, comes at a difficult time for commercial property funds. Funds faced considerable headwinds in 2019 from the uncertainties around Brexit and a really tough year for UK retailers.’ 

Ryan Hughes, head of active portfolios at AJ Bell, added: ‘With independent valuers finding it impossible to accurately value property given the major economic uncertainty, there is little choice but to suspend dealing.

‘In 2019, the FCA announced new rules forcing the suspension of a fund where there was material uncertainty over pricing of at least 20 per cent of the assets. 

‘Despite these rules not being due to come into force until September 2020, they have effectively been adopted by asset managers in the face of such major economic turmoil.’

Investors will understandably find these closures distressing at such an uncertain but for now, there is nothing to be done. Open-ended property funds face the issue of taking time to try and offload large property assets in order to generate cash, and current market conditions will only make that harder.

Hughes added: ‘With the FCA continuing to look at the appropriateness of illiquid assets in daily traded funds, surely this must spell the end of such structures to avoid damaging the confidence of investors in the funds industry.’