Aberdeen property fund hit by surge of withdrawals

Investors withdrew tens of millions of pounds from a Standard Life Aberdeen UK property fund after the suspension of a rival M&G product, sparking fears of a repeat of the crisis that engulfed the sector after the Brexit vote.

Daily outflows from the £1.3bn Aberdeen UK Property fund, one of the biggest daily-traded funds of its kind, hit £31m on Wednesday, almost equal to withdrawals for the previous four months combined, according to early estimates from data provider Morningstar.

The exodus will fuel concerns that the gating of the M&G property fund is spiralling into a wider crisis as investors pull their cash to avoid being locked in their investments.

A surge in property fund redemptions arose after the Brexit vote, which spurred a domino effect of suspensions.

Ryan Hughes, head of active portfolios at investment platform AJ Bell, said: “This is what we saw in 2016. Investors try to get out quickly because they are worried about being the last ones left in the fund and getting out at below market price.”

If redemptions were to continue at the same pace as Wednesday, SLA’s fund could run out of cash to pay back investors within about a week, according to Financial Times calculations. Cash accounted for 14.6 per cent of the fund’s assets at the end of November, giving it an estimated £160m after Wednesday’s redemptions.

“If you eat through a large portion of your liquidity buffer in one day, that clearly points to problems,” said Mr Hughes.

SLA said it was monitoring the situation closely and assessing any impact the M&G suspension had on investor sentiment towards UK property funds. It said its fund would maintain its cautious investment stance until there was “greater clarity on the outlook for the UK economy in the context of Brexit and the upcoming general election”.

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It declined to comment on the level of outflows.

The Aberdeen fund owns buildings including the Moor shopping centre in Sheffield, which property agents said it was looking to sell, and retail parks in Biggleswade and Edinburgh.

Investors have fled property funds this year as fears mount about the risks of a hard Brexit, the results of Britain’s general election and the outlook for the UK property market. Long-running concerns also exist about the suitability of so-called open-ended property funds, which allow investors to redeem money on a daily basis despite holding assets that can take months or even years to sell.

This debate has intensified in the wake of the downfall of Neil Woodford’s flagship fund, which was suspended this year following a similar liquidity crunch.

Edward Glyn, head of global markets at Calastone, said: “Real estate funds keep breaking new records for all the wrong reasons as capital continues to leave the open-ended sector.”

Outflows from property funds accelerated in November, with £251m in redemptions, up from £208m in October, according to figures from Calastone. The sector has had 14 consecutive months of outflows.

Investment platforms including AJ Bell and Plymouth-based Shore Financial Planning this year ceased recommending any open-ended property funds to their clients because of liquidity concerns.

The Financial Conduct Authority, the UK regulator, is due to impose new rules in 2020 that will force property funds to halt trading if there is uncertainty about the value of 20 per cent or more of their assets. However, the regulator has stopped short of banning daily traded funds from investing in illiquid assets such as property.

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