Fund suspensions “preferable” to distressed property sales

Real_estate_fundFinancial advisers would prefer property funds to suspend trading if the alternative meant selling assets at distressed prices, research has found.

A report said the overwhelming majority of independent financial advisers surveyed preferred fund suspensions over a general sale of assets at distressed prices in order to meet daily liquidity demands.

The Association of Real Estate Funds (Aref) commissioned the report in the wake of last year’s UK property fund dealing suspensions following the Brexit vote.

However, the approach to the valuation of real estate assets in periods of volatility needs reviewing, the report said. There needed to be greater clarity in the valuation process in terms of market uncertainty as this is “vital to the future success of open-ended funds”.

Aref commissioned an independent consultant, John Forbes, to carry out the report in order to “ensure that the property funds industry continues to work in the best interests of its clients”.

Forbes, whose report is called ‘A review of real estate fund behaviour following the EU referendum’, said: “The regulatory and operating framework for retail investment in the UK in practice restricts retail investors to daily traded funds. Investors should have the choice to also invest in less liquid products, and those who choose to continue to invest in daily traded products need to be fully aware of the cost of liquidity, the risk that liquidity might not be available when they want it and the differences between funds.”

He said communication by fund managers and IFAs to their clients about these products needed to improve.

John Cartwright, chief executive of Aref, said the industry recognised this and that valuation processes could be made better.

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