Investors pumped billions of pounds into “open-ended” property funds on the promise that they could withdraw their money at any time.
However, the Covid economic crisis hit property valuations, leading to fears of a stampede of investors out of the funds, so fund managers shut the doors, banning redemptions.
Controversially, they continued charging investors fees even though many had been asking to leave.
Investment Week magazine today calculated that those management fees totalled £40 million in 2020, while some were still even charging them today, as £2.8 billion of investors’ money remains locked away in three funds which have yet to reopen.
The charges are likely to be even higher, the magazine noted, because data for St James’s Place, Aviva Investors and Canlife’s property funds were unavailable.
Investment Week also said it had not included other fees such as property, transaction and dealing costs he costs calculated only apply to the management fees of the fund, with various other fees such as property, transaction and dealing costs.
The M&G Property Portfolio raked in the biggest fees, partly because it was the biggest fund. It continues to be closed today – 17 months into the closure. M&G shut the gates in December 2019 citing Brexit uncertainty – long before Covid caused other funds to close in March.
It was the second time in four years that supposedly instant-access funds had closed, leaving investors unable to buy or sell.
St James’s Place, Columbia Threadneedle, Royal London, Legal & General Investment Management, Aberdeen Standard Investments, BMO Global Asset Management and Janus Henderson have all since reopened their funds.
Aegon, Aviva and M&G remain closed, saying they want to have more cash available to meet potential redemptions so they don’t have to conduct a fire sale of buildings.
The FCA has suggested that, rather than pretend to investors that they will always be able to get their cash back, fund managers should make redemptions only available on 90 or 180 days’ notice so they would have more time to sell properties if mass redemption requests required it.
Some fund managers rejected the idea as it might put off investors. The magazine cites Charles Incledon, client director a Bowmore Asset Management, who said it would make investors “far less enthusiastic” and might make them ineligible for ISAs.