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UK property funds suffer worst week since Brexit referendum

Patrick Collinson
Photograph: Alamy Stock Photo

A dash for the exit by investors has left UK property funds nursing their worst week of withdrawals since the Brexit referendum, and raised fears that further funds may be forced to close.

Last week M&G, one of the UK’s biggest asset managers, shocked small investors when it blocked withdrawals (called ‘redemptions’) from its high-profile £2.5bn property fund.

Since then, demands for withdrawals at other funds have rapidly accelerated, according to data from Calastone, a global fund transaction network.

Calastone said that in the week since M&G’s closure, investors have taken a further £193m out of UK property funds, significantly ahead of even the heightened level of redemptions of £176m a week before M&G closed its doors. Around £60m was withdrawn within 24 hours of the M&G announcement.

A wave of redemptions is particularly difficult for property funds to handle, as they have to sell bricks-and-mortar properties to fund payouts, and sales can take months to complete. The funds typically hold a cash ‘buffer’ to handle day-to-day redemptions, but these reserves come under intense pressure if there is a surge of withdrawal requests.

Aberdeen Standard’s £1.3bn property fund is understood to be one of the worst affected by the sudden rush of redemptions. But a spokesman said the fund remained open and able to finance withdrawals.

It is understood that daily withdrawals from the Aberdeen fund hit a high of £31m in the wake of the M&G suspension. According to fund data company Morningstar, the fund has suffered a total of £70m in redemptions. An Aberdeen spokesperson declined to comment on withdrawals, other than to say the fund remained open.

The core of the problem with property funds is their exposure to beleaguered assets in the retail sector, such as shopping centres and malls, where shops are going bankrupt and rents are falling. Aberdeen UK Property has a large portion of its investments in the retail sector, although it is currently in the process if selling its Moor shopping centre in Sheffield, with a price tag believed to be £89.4m, which will raise its cash buffer significantly.