In response to a wave of redemption requests from investors, St James’s Place made the critical decision to suspend trading in its property fund. This wasn’t a snap decision but a calculated move following a substantial £829.5 million in invested capital. The suspension affects all transactions since the previous Friday.
Additionally, it’s not just a matter of halting new investments. Those who wished to withdraw from the fund, specifically from the firm’s property life and pension funds—valued at £563 million and £838 million respectively—are now in for a wait. The company has set a timeframe of up to six months for these redemptions to be processed.
Why Are Funds Being Suspended?
Persistent Challenges Post-Covid-19
The reasoning behind this significant move? St James’s Place cited a notable decrease in investment inflows coupled with a spike in withdrawal requests. This trend isn’t unique to them, and it’s largely attributed to the persisting consequences of the Covid-19 pandemic—specifically, the continuous vacancies in office spaces which have deterred investors.
Parallel to this, M&G, another asset management giant, closed its £565 million property fund. The closure was attributed to waning interest from retail investors, a sentiment that seems to be industry-wide. Similarly, just a week earlier, Canada Life Asset Management also put a pause on redemptions, pointing out that an “overwhelming majority” of investors were seeking to exit their UK property fund.
Preventing Fire Sales
Tom Beal, the director of investments at St James’s Place, explained that the suspension serves as a preventive measure against the need to hurriedly offload properties to raise cash. In such scenarios, properties might be sold at less than their market value, inflicting financial losses on both the fund and its investors.
Liquidity Mismatch Concerns
The recent suspensions underscore an inherent challenge in the property investment sector: the liquidity mismatch. This is essentially the discord between the daily dealing that open-ended property funds typically offer and the actual duration it takes to sell a property. It’s not a new dilemma; similar suspensions occurred in 2016 following the Brexit vote and in 2020 during the pandemic-induced uncertainty.
How Are Investors Being Affected?
Despite the unsettling news, shares in St James’s Place surprisingly climbed 1.56 per cent on the following Monday. However, it’s crucial to note that they have plummeted by over a fifth within the past month, coinciding with an announced alteration in their fee structure.
Regarding the financial movements within the funds, the property unit trust, life, and pension property funds witnessed net withdrawals amounting to £211 million, £131 million, and £191 million, respectively, over the preceding year.
In a move possibly intended to cushion the blow for investors, St James’s Place has marginally reduced the unit trust’s annual management charge by 0.15 percentage points. This adjustment brings the total charge down to 1.89 per cent amidst the ongoing suspensions.
M&G’s Strategy Moving Forward
In the case of the M&G fund, trading was suspended as of October 19, with a plan to liquidate its assets and return the proceeds to its investors. This process is projected to span 18 months. Additionally, management fees experienced a cut from 0.8 per cent to 0.6 per cent.
Global Regulators Weigh In
Given the tumultuous nature of funds containing illiquid assets like property, global regulators in July put forth a recommendation. They suggested that fund managers impose charges on clients who wish to redeem their investments, a strategy aimed at tempering the frenzy of mass withdrawals.