UK Property Funds Fail to Deliver Bang for the Buck
Managers Consider Raising the Exit Barriers and Eye Prime Properties in London and South East
UK property fundsare finding themselves in a tricky environment – the growing divide in values between prime property and weaker real estate in secondary markets dragging down their profitability and scaring investors away. Managers are now considering ways to impede their clients from exiting the funds, disappointing many who believed property funds could deliver liquidity.
Aviva Investors' £1.1 billion property fund reported in its fourth quarter statement that it deferred redemptions for up to a year after seeing an increase in the number of requests from investors to pull their money out of the fund. The £327 million Glanmore Property Fund, which began imposing barriers on exiting as long ago as late 2007, said in its fourth quarter report that the time frame for a postponement of redemptions had been revised from four years to up to six years. The £55 million Alpha UK Real Estate fund told investors in September that it would extend its existing ban on redemptions until the end of 2013.
According to Lipper data published by the Investment Management Association, property funds in the UK returned 10.8 percent in 2012 but have lost 8.8 percent over the past five years. "I think things are so bifurcated at the moment in terms of performance that it has affected people's decisions about property." said Paul Jayasingha, senior investment consultant at Towers Watson.
Property fund managers are now turning tocommercial property, which delivers a consistent income and is less correlated with the stock markets, to boost profitability. Years of low and negative growth have discouraged investors from buying high street shops in smaller cities and instead made them focus on real estates in "bombproof locations" – top-end office and retail space in London and the South East.
An example of a property fund concentrating on prime end estates is the £940 million Ignis UK Property run by George Shaw. Almost 70 percent of its portfolio, which includes 62 properties with 289 tenants, is concentrated in London or the South East. Even so, ‘diversity of assets and tenants is important', Shaw says. Over the past year the Ignisfund couldn't deliver a return to its investors with its rental income wiped out by falls in property values. Shaw hopes for a recovery in the real estate market and predicts returns in the next three years of around seven percent annually.
For more information on property funds visit iNVEZZ, the new investors' portal.
UK property fundsare finding themselves in a tricky environment – the growing divide in values between prime property and weaker real estate in secondary markets dragging down their profitability and scaring investors away. Managers are now considering ways to impede their clients from exiting the funds, disappointing many who believed property funds could deliver liquidity.
Aviva Investors' £1.1 billion property fund reported in its fourth quarter statement that it deferred redemptions for up to a year after seeing an increase in the number of requests from investors to pull their money out of the fund. The £327 million Glanmore Property Fund, which began imposing barriers on exiting as long ago as late 2007, said in its fourth quarter report that the time frame for a postponement of redemptions had been revised from four years to up to six years. The £55 million Alpha UK Real Estate fund told investors in September that it would extend its existing ban on redemptions until the end of 2013.
According to Lipper data published by the Investment Management Association, property funds in the UK returned 10.8 percent in 2012 but have lost 8.8 percent over the past five years. "I think things are so bifurcated at the moment in terms of performance that it has affected people's decisions about property." said Paul Jayasingha, senior investment consultant at Towers Watson.
Property fund managers are now turning tocommercial property, which delivers a consistent income and is less correlated with the stock markets, to boost profitability. Years of low and negative growth have discouraged investors from buying high street shops in smaller cities and instead made them focus on real estates in "bombproof locations" – top-end office and retail space in London and the South East.
An example of a property fund concentrating on prime end estates is the £940 million Ignis UK Property run by George Shaw. Almost 70 percent of its portfolio, which includes 62 properties with 289 tenants, is concentrated in London or the South East. Even so, ‘diversity of assets and tenants is important', Shaw says. Over the past year the Ignisfund couldn't deliver a return to its investors with its rental income wiped out by falls in property values. Shaw hopes for a recovery in the real estate market and predicts returns in the next three years of around seven percent annually.
For more information on property funds visit iNVEZZ, the new investors' portal.
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