Standard Life to open suspended property fund

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Financial giant Standard Life is the latest investment giant to announce plans to reopen it suspended property fund. The UK Real Estate Fund, and associated feeder funds, was suspended in light of the Brexit vote which led to unprecedented redemption instructions. Many of the larger financial institutions levied significant discounts on their property investment fund units and suspended trading. This came to be synonymous with the challenging commercial property market in the UK but it looks as though things are now starting to return to normal.

Did investment giants overreact?

While many of the larger real estate funds in the UK have tradable units, any large run on redemption instructions can require fund managers to sell actual assets. In normal market conditions there tends to be a cash reserve available to cover redemption levels or some fund managers can increase their debt levels in the short term. However, in light of the UK vote to leave the European Union it seems there was unprecedented selling of commercial property units leaving funds effectively short of cash and holding assets which were potentially worth less than their stated asset value.

It is worth noting that the suspensions enacted by many investment giants are not uncommon during volatile markets. Perhaps the fact that UK voters had decided they wanted to leave the European Union pushed these funds further into the limelight than normal?

Have markets returned to normal?

If you read the financial press you may be under the impression that the Brexit vote is likely to cause a collapse in UK commercial property values. In the aftermath of the actual vote itself the financial press was full of negative stories many of which still continue today. The reality is that commercial property prices in the UK have held up much better than many analysts had expected. That is not to say there will not be significant volatility ahead, as the UK moves towards the negotiating process, but perhaps the scaremongering has been overdone.

At the end of the day, whether you believe the press are not, the proof is in the pudding and the fact that many of the investment giants dealing in property funds have decided to lift redemption suspensions is a positive move. It will be interesting to see whether those who had been looking to redeem their property fund investments follow through with their initial intentions or whether perhaps investors are now more comfortable than they were with the situation after the vote.

Highlighting property fund redemption process

In theory, the ability to trade property fund units has been a godsend to many people in the past allowing them relatively quick access to funds invested in property. However, many would now argue that a redemption suspension by many of the larger property funds has highlighted one of the flaws in this particular area. It will be interesting to see how popular these property fund units are in the short, medium and longer term and whether indeed some investors will now look towards direct investment in property assets.

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