- Liquidity issues become apparent once more as Aviva Investors announces plans to shut its open-ended property fund
- Announcement follows a delay to the regulator's decision on whether to introduce withdrawal notice periods on such funds
Aviva Investors has decided to close its £367m open-ended property fund, warning it has become “increasingly challenging” to generate positive returns while also managing the inherent liquidity issues of the structure.
Aviva Investors UK Property (GB00BYYYZ110) was among several open-ended vehicles to suspend trading in March 2020 amid the initial uncertainty of the pandemic. While many of the other open-ended property funds have now resumed trading, Aviva Investors said that a strategic review into its offering, among other factors, had suggested it would struggle to thrive in future. The fund and its feeder vehicles will remain suspended until closure on 19 July.
“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 in a note to investors. “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 cost associated with other asset types.”
The announcement comes after the FCA said it would not yet decide whether to impose lengthy withdrawal notices on redemptions from the likes of open-ended property funds. With such funds offering fast withdrawals but needing much longer to sell their holdings, a liquidity mismatch has caused serious problems. Many property funds had suspended trading amid the uncertainty that followed 2016’s Brexit vote.
As AJ Bell head of active portfolios Ryan Hughes noted, the open-ended property sector as a whole continues to face challenges.
"Looking ahead, while other funds have managed to reopen, there remains a question mark over the future of property funds given the FCA's review into the sector, its liquidity and the future shape of the long term assets funds [a proposed structure for holding illiquid assets in an open-ended format]," he said. "There is hope that some clarity will come later in the year and investors will need this to have any kind of confidence in the funds they hold and the structures they operate in.”
Read our argument for calling time on open-ended property funds here: https://www.investorschronicle.co.uk/shares/2020/10/30/why-it-s-time-to-dump-open-ended-property-funds/
