Some large UK-focused property funds are limiting withdrawals, extending restrictions that began in the fall, as investors such as pension funds pull back from the sector.
BlackRock is deferring meeting third-quarter requests for redemptions from a fund that would ordinarily have been paid at the end of December, said a person familiar with the matter.
The £3.5bn, or roughly $4.2bn, BlackRock UK Property Fund is considering redemptions quarter by quarter, The Wall Street Journal earlier reported. It deferred second-quarter redemptions that were due to be paid out on 30 September. The fund is able to defer redemptions by up to two years.
The move has gained attention because rising interest rates have already rattled property markets and related assets. Redemption deferrals raise alarms with investors because historically they have often signalled further market distress.
British asset manager M&G said on 5 January it would extend a temporary deferral introduced in November for its £4.6bn Secured Property Income Fund. M&G imposed the deferral because the fund didn’t have enough cash on hand to satisfy redemption requests, the firm said at the time. The requests came from some pension clients that needed to raise cash or rebalance their portfolios in the wake of market volatility, the firm said.
Selling real estate and other illiquid assets can be time-consuming, and redemption delays can help property funds avoid fire sales of assets. In the US, Blackstone Inc.’s giant real-estate fund aimed at wealthy individuals, the Blackstone Real Estate Income Trust, said last month it would limit redemptions.
The property-fund restrictions in the UK are “likely to continue until we have not just stabilisation in interest rates, but a reversal of interest rates,” said Peter Papadakos, head of European research at Green Street, a real-estate data analytics firm. “We’re not out of the woods yet.”
The value of many real-estate holdings haven’t been marked down as quickly as other more liquid holdings, which means many investors now have outsize allocations and are trying to get out, he added.
UK pensions, for example, scrambled last fall to meet collateral calls triggered by wild moves in government bonds. Yields on UK sovereign bonds, or gilts, soared after the government unveiled sweeping tax cuts in late September.
That led to rapid selling by pensions and redemption requests in alternative investments such as property and private equity funds. Now, funds are reassessing their portfolios and trying to scale back their allocations to illiquid assets that are tougher to sell.
Property funds extending their restrictions isn’t surprising, said Ben Gold, head of investment at XPS Pensions Group, a UK pensions consultant.
“In the very early stages, schemes were trying to get immediate liquidity, which caused some of the funds to close the doors,” he said. Now funds are trying to get out of illiquid assets, he added.
Schroders’ UK Real Estate Fund last fall told investors it would defer most of the £65m in redemptions due to be paid out in October to as far out as July 2023. Schroders said it made the decision to help shore up cash.
On 5 January, a Schroders spokesperson said as a result of selling an east London property, it had fulfilled all outstanding October redemptions. The spokesperson declined to comment on whether the fund was deferring redemptions slated to be paid out in January, but said it was having discussions with clients and that it has a “robust liquidity management strategy.”
Another major investment firm, Columbia Threadneedle Investments, said on 5 January it would stick to a recently introduced policy of only allowing monthly, rather than daily, redemptions by most investors for its Threadneedle Pensions Pooled Property Fund.
Reuters earlier reported the delays by BlackRock and M&G.
Write to Julie Steinberg at firstname.lastname@example.org
This article was published by The Wall Street Journal, part of Dow Jones