Aviva Investors is shutting its £367m UK Property fund 14 months after it suspended dealing, citing liquidity concerns, but warned investors will have to wait up to two years to get their money back.
The asset manager, which is also shutting two feeder funds, said it has become ‘increasingly challenging to generate positive returns’ from the asset class, while also maintaining the ‘necessary liquidity to reopen the funds’.
The bricks-and-mortar UK Property fund blocked withdrawals in March 2020 when the coronavirus pandemic forced a wave of property fund suspensions due to material uncertainty over the value of the assets within portfolios.
Many of the big retail property funds, from the likes of Columbia Threadneedle, Janus Henderson and Aberdeen Standard Investments have since reopened, but Aviva has written to investors today, saying it will wind down its funds from July.
The company will return an estimated 40% of investors’ cash at that point, but said selling its remaining assets will take between 12 and 24 months.
Aviva had placed the three funds under review following its value assessment report, published in January, but has now concluded that it is ‘in investors’ interests to wind-up the funds and return cash to investors in a fair and orderly manner’.
‘This review, combined with forecast redemption levels upon reopening, concluded that the funds’ ability to fully benefit from the economies of scale and the diversification of investments that collective investment schemes normally bring would soon be limited,’ the firm said.
‘Size is particularly important for funds that invest in property directly because the costs involved in acquiring, managing and disposing of properties are usually much higher than the costs associated with other asset types.’
The three funds will remain suspended until they start being wound down on 19 July.
The Financial Conduct Authority announced a further consultation into the mismatch between open-ended property funds holding illiquid assets, such as property, in May, after the latest round of fund suspensions when the pandemic struck.
Mass suspensions of property funds were also seen after the EU referendum, which sparked a wave of withdrawal requests, forcing managers to suspend trading as they ran out of cash.
The M&G Property Portfolio, which had been gated for around 17 months, only reopened last week, underlining how long investors’ money can be trapped in funds when there is a stampede for the exit.
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