Standard Life suspends trading for £2.9bn RE fund following run

The Edinburgh-based asset management arm of insurance giant Standard Life blamed “exceptional market circumstances” for the decision which comes a week after the firm wrote down the value of the fund by 5% following the result of Britain’s EU referendum. 

Standard Life Investments (SLI), the asset management arm of insurer Standard Life, has suspended trading in its £2.9 billion ($3.8 billion; €3.4 billion) UK property fund, Standard Life Investments UK Real Estate, following a rapid increase in redemption requests since the Brexit vote. 

The Edinburgh-based firm announced on Monday (July 4) that all trading activity was suspended from midday, blaming “exceptional market circumstances” for the decision. “The suspension was requested to protect the interests of all investors in the fund,” an SLI spokeswoman said in a statement.

SLI has invested in a diverse mix of prime real estate on behalf of the fund, including office, retail and industrial. The decision means investors will not be able to buy or sell units in the fund until further notice, while managers look to raise cash by selling off some of the portfolio. SLI said it would formally review the suspension of trading in the fund 28 days from Monday, and every subsequent 28 days after that.

The last time SLI stopped investors taking their money out of the fund was during the financial crisis.

The Standard Life Investments UK Real Estate mainly comprises retail capital but does also include some institutional money too.

Last week, the asset manager announced it had written down the value of the fund by 5 percent, saying the referendum result had negatively impacted valuations for UK commercial real estate.

Laith Khalaf, senior analyst at Bristol-based financial services company Hargreaves Lansdown, said property funds have been under pressure since the referendum. “We could now see a new wave of investors being unable to liquidate their property funds quickly, which we last witnessed during the financial crisis,” he said.

“This is part of the problem with investing in open-ended property funds, and one of the reasons we don’t recommend them to investors,” he added. “Property does offer diversification, and a reasonable yield compared to government bonds, but investors must be willing to accept high costs, and a lack of liquidity when the market turns down.”

Khalaf warned that investors redeeming their capital could put “downward pressure” on commercial property prices, causing a “vicious circle” and prompting more investors to dump property. “Continued low interest rates in theory provide support for commercial property, because as prices fall, yields become even more attractive,” he said. “However at the moment, investors appear to be leaving the sector, rather than buying in,” he added.

Since the Brexit vote, several large real estate funds have reduced the value of their holdings. Henderson Global Investors and Aberdeen Asset Management cut the value of their UK property funds by 4 percent and 5 percent respectively.

A number of fund managers have also decided to price their property funds weekly, rather than monthly, to safeguard themselves against market volatility, according to multiple reports.

But the SLI spokeswoman said the process of selling the assets held by the fund could be lengthy and complex.“The selling process for real estate can be lengthy as the fund manager needs to offer assets for sale, find prospective buyers, secure the best price and complete the legal transaction,” she said.

“Unless this selling process is controlled, there is a risk that the fund manager will not achieve the best deal for investors in the fund, including those who intend to remain invested over the medium to long-term,” the spokeswoman added.

In contrast to its current predicament, SLI held a successful final close in December last year for its second European-focused real estate fund, Standard Life Investments European Real Estate Club II (Euro Club II), after accruing capital commitments of €391 million from 10 investment groups. The vehicle, which had total firepower of €790 million including leverage, targeted commercial property in France, Germany, the Nordics and Benelux. SLI has already invested 35 percent of the fund’s capital in the purchase of six office and industrial assets in France. The fund’s predecessor, Euro Club I, had a final close of €308 million in October 2014 and has now invested all of the capital.