Aviva Investors has decided to shut down its UK Property fund after a near 15-month suspension period.
The £367m fund was forced to close its doors last March along with all the major UK property funds after the Covid crisis made it impossible to determine the value of their underlying holdings.
Following the re-opening of the M&G Property Portfolio earlier this month, Aviva Investors UK Property and Aegon Property Income were the last funds in the sector to remain shuttered.
Aviva Investors explained since the fund’s suspension it had become “increasingly challenging to generate positive returns while also providing the necessary liquidity to re-open the fund” and had made the decision to close the fund and two feeder funds.
In its second assessment of value report published in January the fund board recommended the three funds be placed under review to “ensure investors’ long-term interests could continue to be served”.
But after taking the review and projected levels of redemptions upon re-opening into account, the asset manager concluded UK Property’s “ability to fully benefit from the economies of scale and diversification of investments that collective investment schemes normally bring would soon be limited”.
“The asset sales required to provide ongoing liquidity would compromise the portfolio by limiting our ability to maintain diversification and deliver the fund’s stated performance objectives over the long term,” the firm said.
“We have therefore decided it is in the best interests of investors to close the fund and return cash to them in a fair and orderly manner.”
‘Any move to raise liquidity was always likely to make the fund unviable’
AJ Bell head of active portfolios Ryan Hughes said re-opening the fund was always going to be a tough task due to its relatively small size and low number of underlying properties compared with rivals in the sector.
“Any move to reposition the fund to raise liquidity was always likely to make the fund unviable should a number of underlying investors want to redeem as was highly likely and therefore it seems prudent for Aviva to decide to wind up the fund,” Hughes said.
“The key for Aviva now is to ensure that investors receive clear communication on the winding up process and that timescales are well managed to ensure that investors don’t have to wait any longer than is necessary to access their funds.”
Though most other major property funds have now re-opened Hughes said there is still a question mark over the future of the sector following the Financial Conduct Authority’s decision to postpone implementing notice periods for redemptions until Q3.
Simultaneously the regulator is gathering feedback on a new type of investment vehicle, the long term asset fund (LATF) which could replace the current open-ended property fund model altogether.
See also: Investors sceptical FCA LTAF proposal is the panacea for property fund liquidity mismatch
Hughes said: “There is hope that some clarity will come later in the year and investors will need this to have any kind of confidence in the funds they hold and the structures they operate in.”
Aviva Investors Property funds to begin winding up on 19 July
Aviva Investors said the main property fund and feeder funds will continue to be suspended and from 19 July will be placed into termination.
Despite the closure the asset manager stressed it remains “firmly committed to real estate” and said it was “actively looking at new propositions” to address clients’ appetite for the asset class and real assets generally.
Earlier this year its infrastructure business suffered a mass exodus as four managers followed boss Ian Berry to River and Mercantile to launch its debut infrastructure fund.
