Why is my property fund suspended?

Property fund suspended

This blog post is for you if you would like a ‘plain English’ explanation of the property fund suspensions, levies, postponed surrenders and property fund penalties that we have heard about recently.  

In early July, property funds began to announce suspensions, this means that nobody can invest into the fund or sell from it until the suspension is lifted.

Property funds are 'different' to other investment funds; the fund manager has a really long term plan.  For example, they buy a building, commercial property such as an office block, industrial units or a shopping centre, then they plan to own it for decades to enjoy the rent from it.  The fund manager estimates how many people will put money into the fund (invest) and want money out of the fund (surrender) during that time, to manage the fund's cashflow. 

They have an extra layer of protection, which is the right to delay surrenders, if surrenders are putting too much pressure on cashflow. 

For you, as an investor with a long-term investment timeframe, this has come as a surprise because you weren't planning to surrender.  Nor should you surrender; if commercial property was a suitable part of your portfolio until June 2016, then it still is.  We are still recommending commercial property as a part of almost all of our portfolios.  We will work around the suspension until it is lifted.

Many of the commercial property fund managers have made some alteration to their rules for adding or removing money. Here is a summary of the funds we know best.

Aegon's Property Fund is suspended for withdrawals, but not for new investments.  Aegon's default position is to let you continue investing throughout the suspension. 

Aberdeen Property Fund was briefly suspended on 6th July, then it re-opened with a reduced price, known as a dilution levy, a 'fair value adjustment, like a penalty so that people could invest and surrender.  The penalty was set at 7% on 13th July when the fund re-opened until 29th July and now the fund is running almost normally, with a small penalty of 1.25%.  We expect that to continue for a while.

Royal London's property fund is unaffected.

These funds remain suspended, at the time of writing, so that no-one can invest or surrender:

• Aviva Investors Property Trust
• Henderson UK Property Fund
• M&G Property Portfolio
• Standard Life Real Estate fund
• Threadneedle Property Trust

So What Next?
We are continuing to review the suspensions and levies so that we can run our clients' portfolios as best we can.

We expect that commercial property will remain a core part of our portfolios for years to come.  The rental yield is useful for our income investors and no-one likes the capital loss, but capital growth is good for everyone.

If you would prefer a more technically detailed explanation, please contact Flora directly. 

 

Here's a little more information about our team:

Q: Qualifications Include

A: My degree in modern languages included a module on economics and personal finance, and that's how I got into financial planning.

Since then, I've become dual qualified as both a Certified Financial Planner and a Chartered Financial Planner, including the specialist qualifications in Tax & Trusts (G10) and Pensions (AF3/G60).

The full list is:

AF3 - Pensions (CII) (I did that to totally update my pension knowledge, as I had done G60 in 1994.)
K10 - Retirement Options (CII)
K20 - Pensions Investment Options (CII)
G20 - Personal Investment Planning (CII)
Chartered Financial Planner (CII)
ER1 - Equity Release (CII)
HR1 - Home Reversion Plans (CII)
G10 - Taxation and Trusts (CII)
CFP - Certified Financial Planner Licence (IFP)
H15 - Supervision and Sales (CII) 

In November 2016 I added the STEP (Society of Trust and Estate Practicioners) Certificate for Financial Services.

Q: Do your clients have anything in common with each other?

A: They are all lovely and there are a few similarities in their aims that I've noticed. 

Many of my clients want to do more than just meet their own needs. They also see themselves as custodians of their money for the next generation or for other beneficiaries. 

In other cases, their aim is to manage their wealth efficiently during their lifetime, with the aim of spending it all… but minimising tax on the way there.

Q: What type of work do you enjoy most?

A: I do get a real sense of satisfaction from the work with those clients who engage me to manage the needs of two generations of the same time. That can be 'just' a long-term and balanced investment strategy or it can be trust planning and estate planning to avoid paying too much Inheritance Tax.

Q: Where would you be right now if you weren't at work?

A: In the Lakes

Q: In the film of your life, who would play you?

A: In my head, it's Uma Thurman, but I expect they would approach 'Nursey' from Blackadder II.

Q: Curry or Hot Pot?

A: Agh, too difficult. Curry.

Q: Sherbert or Chocolate?

A: Chocolate

Q: Lawn or Flowers?

A: Lawn

Q: What are you most likely to do whilst being 'on hold'?

A: Infuriate my colleagues by opening conversations then cutting off their reply when my call is answered.