Property Fund Suspensions
The effects of Coronavirus are far reaching across many aspects of our day-to-day lives, and of course bringing heavy market turbulence.
Last week we saw a number of funds with holdings in property suspend. These are significant moves, but I want to stress that they are done entirely with a view to protecting the investors who are saving their money within those funds.
While no one likes the idea that their money might be locked away or inaccessible for a time, there are very good reasons why this decision has been taken.
When we invest in a property fund, we are effectively buying up the buildings that house the restaurants we eat in, the hotels we stay in, the warehouses that store the goods we buy, the offices we work in.
Right now all of these are being affected by Coronavirus. We’re working from home so our offices are empty. We’re self-isolating, and we’re social distancing, and all of this is hitting the revenues of these businesses. And that makes it less likely they can pay their rent.
At the same time, the broader economic uncertainty means that there are fewer properties being bought and sold. Combined, these factors mean that the valuers who determine how much these properties are worth, can no longer do so with any certainty. When a fund cannot be sure about the value of the property they hold, they cannot be sure about the value of the units held by investors in the funds. Investors buying into the fund could then pay too high a price or investors redeeming from the fund may not get the full value of their shares if property has been priced too low.
Under these rather extraordinary conditions it’s right that fund managers act promptly and responsibly by suspending the funds. (Important to note here that the suspensions are due to the uncertainty over valuations, and advice from the valuers and not redemptions.) The suspensions help ensure that investors, mostly long-term pension savers, are protected. Fund suspensions like these are subject to strict FCA regulations in order to ensure that all investors are treated fairly.
And while the events of the last few days have certainly been exceptional, we have seen property funds suspend before. After the referendum in 2016, some UK property funds were suspended for a period of time. All reopened.
We can’t say for any degree of certainty what will happen this time round, but it is worth bearing in mind the often repeated phrase, that investing is the for the long term. Particularly when it comes to property. And while these are unsettling times, we should do our best to maintain the long term perspective, and ensure that our decisions around our investments are well thought out, and taken with appropriate advice.
The most important thing is that people understand what is happening with their investments, and are confident that their investment managers will be working hard to ensure the long term gains that we all hope for when we make an investment, are ultimately realised.