Legal & General’s fund arm and F&C Investments both cut the value of their U.K. property funds on Thursday, as the industry seeks to stem a tide of redemption requests since Britain’s vote to leave the European Union.
More than 18 billion pounds of investor cash has been frozen in the last week as funds run by M&G Investments, Standard Life Investments and Threadneedle Investments, among others, suspended trading.
This week Canada Life said in a note to investors seen by Reuters that it had also suspended its Canlife Property and Canlife U.K. property funds.
The firm said it made the decision due to “ongoing uncertainty around the pricing of commercial property assets, following the vote to leave the EU, and the recent rise in requests to withdraw...from the property funds.”
“This is the problem with these types of funds. Once you start getting people running toward the exit, it becomes a little bit of a stampede,” Danny Cox, head of financial planning with Hargreaves Lansdown, told BNN.
“The funds have to take action in order to not only protect existing investors, but also because these fund managers don’t want to become forced sellers in a market that’s really uncertain at the moment.”
The latest moves to cut the value of funds is a less extreme method of controlling redemptions, as it effectively forces those looking to leave to accept a lower price than was established the last time the property portfolio was valued.
Legal & General Investment Management, the fund arm of insurer Legal & General, said it had cut the value of its 2.3 billion pounds (US$2.99-billion) U.K. Property Fund by a further 10 per cent, after a previous 5 per cent valuation cut.
“At this time it is still difficult to predict the exact impact of the vote to leave and subsequent market events on commercial property values,” LGIM said in a statement.
F&C, part of the fund arm of Bank of Montreal, said it had cut the value of its 305 million pound U.K. Property Fund by 5 per cent as part of a move to fair value pricing.
“The level of redemption requests we have recently received and market conditions suggest that investors may place further redemptions; leading to downward pressure on realizable property values,” it said on its website.
“The move to fair value pricing for the Fund means we may make adjustments to the valuation of its property assets to ensure that they are priced at a level which, in our opinion, reflects a fair and reasonable price for those assets.”
Gordon Reid, president and CEO of Goodreid Investment Counsel, called the rash of suspensions among U.K. property funds “troubling” but not “particularly surprising.”
“These funds have in their prospectuses anticipation of this type of thing happening,” Reid told BNN in an interview. “They invest in illiquid assets, it’s equivalent to a run on the bank – but the cash is tied up. I’m interested in how we get out of this.”
With files from BNN
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