Are property funds affected by the liquidity crisis?
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Three asset managers have reportedly placed redemption restrictions on UK property funds following recent market turmoil. How about insurers’ real estate asset managers?
Schroders, Columbia Threadneedle and BlackRock are said to have placed limits following demands from investors seeking to withdraw from property funds, according to the Financial Times.
BlackRock has reportedly imposed redemption limits on the £3.5bn BlackRock UK Property fund after receiving withdrawal requests in the second quarter.
The firm has been approached for comment.
A spokesperson from Schroders said the Schroders Capital UK Real Estate Fund (SCREF) has made the decision to partially defer redemptions relating to the 3 October 2022 dealing day.
The decision was made in line with the fund’s obligation “to act in the best interest of all investors”, the asset manager said, to ensure sufficient liquidity is maintained “in order to progress important asset management initiatives in line with performance enhancing business plans”.
“The Fund continues to deliver long-term secure income for investors thanks to its defensive and resilient real estate portfolio, which is anchored by high-quality assets and secure tenants,” Schroders continued.
“The portfolio is also well protected against inflation with 17% of assets benefitting from inflation-linked leases, increasing to 24.8% on the completion of Two Ruskin Square, a prime, highly sustainable office development in Croydon that has been pre-let to the UK government on a new 25-year, inflation-linked lease.”
A spokesperson from Columbia Threadneedle Investments told mallowstreet it had introduced deferred redemptions on the TPEN Property Fund due to liquidity constraints resulting from the recent market volatility and a subsequent increase in redemption requests.
The company added the move “is in the best interest of investors” in the fund, allowing for an orderly sale of assets to meet redemption requests. “We aim to return the fund to daily dealing as soon as possible and notify policyholders as and when this will be the case.”
Will insurers do the same to their property portfolios?
Real estate typically accounts for no more than 5% of insurers’ investment portfolios, but many are growing appetite in this area.
For the property arm of Legal & General Investment Management, redemption deferral is only used under “very specific circumstances”.
Mike Barrie, director of fund management for LGIM Real Assets, said: “Deferral is not in place on any LGIM Real Assets funds although, in very specific circumstances, it remains one of a number of liquidity management tools we have at our disposal to act in the best interests of investors.”
He added the company continues to deliver and manage “income resilient, high quality” real estate, operational assets and infrastructure and is expanding internationally.
“The portfolio is well diversified across sectors and UK regions making it well placed for any structural changes,” he said.
Pension schemes with liability-driven investment programmes were forced to post collateral following chancellor Kwasi Kwarteng’s Mini-Budget statement, which sparked market volatility due to deep tax cuts policies and levels of borrowing.
Gilt prices tumbled and the crisis was only interrupted when the Bank of England stepped in with emergency quantitative easing until 14 October.
Are insurers able to withstand the UK liquidity crisis without deferring redemptions?
