Property fund freeze leaves investors with two-year wait to get money back
08-17-2015
Investors in Aviva fund told of move in note that revives unhappy memories of 2008 commercial property freeze
Gherkin building
Most commercial property portfolios now include buffers of cash to meet withdrawals, but some advisers are still worried. Photo: AFP
By Kyle Caldwell
A property fund run by insurance giant Aviva has suspended dealing after losing two of its biggest investors.
Savers left in the fund, called Aviva Asia Pacific Property, now face a wait of two years or longer to get their money back.
This is the second time in less than a week that Aviva has taken action to limit the damage from investors exiting its property funds. Last week it increased costs for those selling out of the £2bn Aviva Property Trust.
The freezing of the £160m Aviva Asia Pacific Property fund will affect fewer people, although these will likely include small investors who originally invested in New Star International Property, which a decade ago was one of most popular property funds. The New Star fund was acquired by Henderson Global Investors in 2009, before being transferred again to Aviva in 2010.
Aviva said it took the decision to freeze the fund because two of the biggest investors, accounting for 75pc of the fund’s assets, have asked for their money back.
As a result Aviva has suspended the fund to give it time to sell its property investments in order to return the cash.
Aviva said once this process was completed it would no longer make sense to keep the fund open because it would be too small. It has therefore decided to close the fund and return money back to everyone at the same time.
But the bad news is Aviva said investors face a long wait – 12 to 24 months – for their money to be returned.
In a note to investors, seen by Telegraph Money, the firm said: “We are negotiating the sale of all the properties. Due to the complexities of selling commercial property and dismantling the legal structures of the fund, it is difficult to accurately forecast how long this process will take.
“However, we expect it to take 12-24 months for us to be able to return the proceeds of your investment to you, but it could potentially take longer.”
Darius McDermott, of Chelsea Financial Services, the broker, said: “There will not be a huge number of British investors in there, but it is frustrating for the people who are not to be able to get to their money. It is a stark reminder of the illiquidity of the property market."
• Henderson UK Property: 'We've never had to freeze money in our fund'
The freezing of the Aviva fund will bring back unhappy memories of 2008. During the financial crisis several property funds, which had caught the imagination of many investors, imposed restrictions to stop a stampede for the exit.
Some similarities with then exist. Commercial property has enjoyed a purple patch with double-digit gains last year and in 2013.
Earlier this year, experts predicted total returns of 10pc for 2015 and savers have been piling in, with a billion invested over the past 12 months.
But estimates for 2016 and beyond have cooled. Gerry Ferguson, manager of the £3.5bn Aberdeen Property trust, said he had been reducing risk because property values have become expensive, particularly in London.
Mr Ferguson noted that around £600m had flooded into his fund over the past year, prompting him to increase the fund’s cash weighting in order to protect investors. Aberdeen has also stopped marketing the fund.
“Our current strategy is one of reducing risk in terms of our property activity, for example we are selling properties where the income may be at risk and investing in core buildings with a longer more secure income stream,” Mr Ferguson said.
Most portfolios now include buffers of cash to meet withdrawals, but some advisers are still worried.
Laith Khalaf, analyst at Hargreaves Lansdown, said: "This highlights how liquidity is one of the key risks of investing in a property fund, and you may not be able to access your money as quickly as you like. Whereas shares like Vodafone and BP can be bought and sold at the click of a button, properties cannot, and this adds an element of risk investors should be happy to shoulder before investing."