UK Property Investment Funds Shutter As COVID-19 Spreads

Law360, London (March 18, 2020, 3:54 PM GMT) -- More property investment funds were suspended Wednesday as a U.K. investors body and the country's markets regulator warned that volatile markets are making it difficult to properly assess the value of their commercial assets.

The U.K. commercial property market is facing unprecedented circumstances as a result of the COVID-19 outbreak and so reliable judgments on value can no longer be made, according to the Investment Association, which represents investment managers.

“Under these conditions property funds need to suspend while this extraordinary situation lasts, in order to ensure that investors, mostly long-term pension savers, are protected,” Paul Richards, managing director of the Association of Real Estate Funds, said in a statement published by the IA.

Financial Conduct Authority rules require property fund managers to consider suspending funds during extreme market conditions. 

The FCA said Wednesday that under circumstances like the one the market is facing “suspension is likely to be in the best interests of fund investors.”

The FCA had introduced tougher measures for funds investing in illiquid assets to ensure investors get clearer warnings about the risk of becoming trapped in holdings of unlisted equity. This mean that property funds will have to halt trading, if there is material uncertainty over the value of more than 20% of their portfolios.

Although these rules are not due to come into force until September, existing requirements would require fund managers to consider suspending funds if unable to provide accurate and reliable valuations of underlying assets, the IA said.

“Fund managers are acting promptly to protect investors and there have been a number of such suspensions with more likely to occur,” the trade body added.

Funds run by Aberdeen Standard Investments, Aviva Investors, Legal & General and Columbia Threadneedle were all suspended on Wednesday.

Aberdeen said it would life restrictions on two funds managing a combined £8 billion “as soon as confidence returns to the market.”

“This action reflects the exceptional circumstances in global markets, including the U.K. property market as COVID-19 spreads, and the need to protect client interests by suspending trading when there is material uncertainty regarding how the assets should be valued,” a spokesperson for Aberdeen said.

Aviva, which suspended trading in its £461 million U.K property fund, said challenging market conditions following the spread of COVID-19.

“If we allow dealing to continue, some investors may be advantaged at the expense of others,” Aviva added.

Meanwhile, Legal & General said the situation was temporary and it will continue to review the suspension “which will remain in place until these extreme conditions stabilise and the uncertainty clauses are removed.”

Two other asset managers, Janus Henderson and Kames Capital, took similar moves to suspend trading in funds holding U.K. property on Tuesday.

--Editing by Katherine Rautenberg.

For a reprint of this article, please contact reprints@law360.com.

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