How Kames property fund avoided suspension

The Kames Property Income Fund, which invests in UK real estate, avoided suspension after the Brexit vote because of a higher-than-average ‘liquidity buffer’, the firm’s property investment director told Funds Europe.

The fund held 33% of its assets under management in cash and real estate investment trusts (Reits) at the time of the June 23 EU referendum. David Wise, property investment director at Kames Capital, said this level of investment in liquid assets was likely higher than at other funds.

“We believe that our liquidity buffer was higher than competitors on 23 June and suspect that it is still higher,” Wise said. The Kames’ fund buffer would normally be 20% but this was raised leading up to the referendum as a precaution.

A number of open-ended UK property funds that invest in direct property had to suspend dealing after the Brexit vote due to a large number of redemptions and the inability to sell property assets quick enough to meet them.

As well as cash and Reits, Wise said the Kames fund was predominantly invested in smaller direct property assets of under £10 million (€11.4 million), which is “an area of the market where liquidity is better” due to a wider range of buyers – such as wealthy individuals – as well as other funds.

The fund, which had £384 million of assets under management (as at end-August), did have to cut its valuation by 5% after the referendum, but since then Kames has completed three property sales for prices at, or ahead of, the vote.

Wise said the liquidity buffer has been lowered to over 25% since the referendum as “the situation is now calmer”.

He said Kames could not give detailed numbers for outflows from the fund after the referendum. But he did say that the roughly 33% buffer at June 23 fell to about 15%, before rising again. This rise was achieved by a combination of the three property sales and investor money coming back into the fund.

Wise is one co-manager of the fund. The other, Alex Walker, is leaving after eight years to take a career break and is to be replaced by Richard Peacock, who joins from Aviva Investors.

The spate of property fund closures shows that open-ended fund vehicles are not appropriate for direct property investments, say some critics such as Marc Haynes, senior vice president at Cohen & Steers.

©2016 funds europe

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