UK firm New Star Asset Management’s £554 million (€ 703 million; $903 million) International Property Fund has been forced to suspend trading following heavy redemptions by institutional investors.
According to media reports, investors have withdrawn as much as £75 million (€95 million; $112 million) from the open-ended fund in past few weeks. In response, it has frozen redemptions for 28 days and is in talks with the Financial Services Authority to extend this for a further period.
In a statement, the firm said institutional rather than retail investors had mainly been pulling out funds. “This has had an impact on the fund's liquidity,” it said. “New Star, with the agreement of the fund's depositary, Royal Bank of Scotland, have, therefore, reluctantly decided to suspend dealing in the fund until further notice.”
Stuart Webster, New Star's head of global property, defended the fund, pointing to its “valuable diversification benefits” in difficult times. “The fund's focus on diverse asset quality has the potential to deliver strong long-term returns to investors,” he said.
The New Star International Property Fund launched in June last year and has invested nearly 18 per cent of its capital in Japan. The second most significant country bet is Singapore, where 13 percent of investments have been made. The fund has also invested in Australia, Germany, the Czech Republic, the Netherlands, and Poland.
New Star is not alone in suspending redemptions from an open-ended fund. Another UK asset manager, Aviva Investors, took the same action with a European fund recently, but it is German open-ended funds that have been particularly hit by investor concerns over falling property values. The Frankfurt based Morgan Stanley Real Estate Investment GmbH and the KanAm US-grundinvest vehicle, for example, have both suspended redemptions, citing illiquidity problems.
Timo Tschammler, managing director of international investment at real estate services firm DTZ, said funds were taking the action to avoid having to sell assets in unfavourable market conditions.