Friends Provident have today imposed redemptions restrictions of up to six months on their £1.2bn internally managed
property funds. Their decision comes at a time when investor confidence in the asset class is already at an all time low, and reflects the difficult position that many other property fund mangers find themselves in. The life and pensions provider is not the first company to take such drastic action, with M&G electing to impose a 90 day redemption notice (which they had previously waived) on the insitutional units of its offshore
M&G Property Fund last month.
In a fa
irly frank announcement, Friends Provident state that “it will become necessary to sell underlying property investments in the fund”. This is something that Morningstar has warned of in previous articles on the subject as the worst case scenario for property managers (see our Property Showing Its Risks article). Forced sales are certainly problematic, especially considering the current state of the market. As other property market participants know funds are under pressure to sell, the ability of distressed sellers to command the best prices could well be constrained. Moreover, with credit markets tight, there is hardly a dearth of cheap money available to speculators wishing to take a chance on a quick turnaround.
Although it seems draconian, Friends Provident’s decision to impose the restrictions is a positive for long-term investors. The restrictions mean that property sales will not have to be completed immediately, and therefore there is a higher chance of a fair price being achieved for their assets. The flip side is that those who have a genuine need to pull money out of the fund at this point will have no alternative but to wait. That's one of the key risks in holding a fund that invests in illiquid assets, and its one that anyone selling such offerings should make abundantly clear.
SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk
To view this article, become a Morningstar Basic member.
Register For Free
The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.