Six months ago property funds suspended trading as investors clamoured to pull their money out in the wake of the Brexit vote, now the money is rushing back in.
After the UK’s vote to leave the EU commercial property funds took a hammering.
Standard Life, Aviva, M&G, Henderson and Columbia Threadneedle stopped trading in their commercial property funds after panicking investors were threatening to cause a collapse in the funds’ value due to withdrawals. The problem being that in order to have the cash for all the withdrawals the funds needed to sell property, which can’t be done quickly.
As well as stopping trading the funds added a ‘fair value adjustment’ to their holdings, this marked down the value of the properties they held and shrunk investors holdings.
Since then the funds have been selling off properties so that they can free up cash in order to be able to allow investors to withdraw their holdings. As a result, funds have slowly started trading again and the fair value adjustments have been removed.
But, rather than seeing investors continue to withdraw their cash, there has now been a complete turnaround with one fund struggling to cope with the number of investors wanting to invest.
The £1.2 billion Columbia Threadneedle UK Property fund has now taken steps to stem the inflow of cash by switching from a bid to offer pricing basis.
Commercial property funds typically have a buy and sell price, known as the offer and bid price. The spread between the two prices can be quite wide due to the high cost of buying and selling buildings. Funds can use this to encourage, or discourage buyers.
If there is a lot of investor interest in the fund, the manager can switch to ‘offer’ pricing, which means those buying into the fund pay the higher price and therefore cover the costs of expanding the fund to buy the new assets needed.
When more money is leaving the fund than coming in the fund can be switched to ‘bid’ pricing meaning sellers bear the cost of selling assets in order to fund their withdrawals.
Threadneedle has moved to offer pricing due to a surge of incoming money. “The change reflects investor recognition of the virtues and strength of property as an asset class,” says Don Jordison, managing director of property at Colombia Threadneedle.
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