Temporary suspension of UK Property Funds

As the Covid-19 pandemic continues to take hold, we are beginning to see the impact on investment markets and indeed on our own investment portfolios which many of you, our clients, hold within pensions or investments. One side effect which we wanted to bring to your attention was the impact on investments which hold property or other physical assets.

These funds are designed to provide long term, steady returns which are not correlated to other asset classes such as equities or fixed income. Unlike other assets which are listed on an exchange or index and whose prices are calculated daily, these funds require manual valuations of the assets that are held within them on a monthly basis.

As a result of the restrictions on movement and the current uncertainty in investment markets (and beyond) it is not currently possible for these valuations to take place as normal or for their accuracy to be guaranteed. The result of this is that a very small amount of the property funds we hold in our portfolios have had a temporary suspension placed upon them, restricting the ability of investors to buy or sell.

This is in accordance with Financial Conduct Authority (FCA) rules which require property fund managers to consider suspending funds during extreme market conditions if there is material uncertainty over the value of more than 20 per cent of their portfolios. The tool is intended to allow managers to sell assets without risking a “fire sale”.  Please see the attached link for further information from the FCA about this;

https://www.fca.org.uk/news/statements/property-fund-suspensions

Whilst this is not a great surprise given the current climate, we can appreciate the fear and uncertainty that this can create. You can be assured that we are in regular contact with the funds affected and they (and we) are content that this is a temporary measure which is in the best interest of most long term investors as it is designed to protect the value of these investments.

The merits of holding these funds within a diversified portfolio remain strong and once this suspension is lifted then the fund will resume trading as normal, whilst in the meantime the fund managers involved are spending time ensuring that the assets they hold are properly maintained and the administration of the fund continues as normal to protect assets.

The diversification within our portfolios means that these funds form only a small part of your overall investment strategy and should there be a need for withdrawals or regular income then there are other liquid assets which can be targeted to provide this. For those investors making regular contributions the allocations to these funds will be temporarily diverted to cash with all other investments continuing unchanged.

If you have any queries about this or would like to discuss the impact on your individual arrangements, then please do not hesitate to contact your adviser.

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Willis Insurance and Risk Management, Willis Wealth Management and Accident Investigation Services are trading names of Willis & Company (Insurance Brokers) Ltd, which is authorised and regulated by the Financial Conduct Authority - 309124. Registration No. NI 32004. Registered in Northern Ireland.

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