Janus Henderson property pricing changes could see others ‘bite the bullet’

The Legal & General UK Property fund already uses dual pricing on a full-spread approach

Janus Henderson has changed the pricing on two of its property funds, leading industry experts to argue if more property funds follow suit and “bite the bullet”, it could ease scrutiny from the Financial Conduct Authority.

Janus Henderson is adjusting the pricing on its £2.8bn UK Property Paif and UK Property Paif Feeder funds from being dual priced on a quoted-spread basis to a full-spread basis.

The manager said the pricing structure, which comes in to place on 25 March 2019, will better reflect the changes in the value of the underlying assets and will not be distorted by money flowing in or out of the funds. This will therefore remove price swings and the volatility that goes with this, it added.

However, Adrian Lowcock, head of personal investing at Willis Owen, said the changes have come in response to criticisms over pricing of property funds from investors and the regulator.

Most property funds use swing pricing where the fund goes to a bid basis if there are more sellers than buyers, he explained.

“I think fund groups are going to watch this closely, a few may bite the bullet like Janus Henderson and decide to go the same pricing as them. The more that do, the more pressure there will be on the others especially with the FCA watching this space.”

But, Janus Henderson argued that the decision follows a period of price volatility for the funds in the second half of 2017 and the first half of 2018. It said these price movements were unrelated to the underlying value of the property investments and solely down to the changing pattern of money which created potential confusion for investors.

Increased transparency

Darius McDermott, managing director at Chelsea Financial Services, welcomed the changes and said Henderson has done this to give investors “greater transparency”.

“Retail investors don’t understand swing pricing. It really is very confusing. This outcome makes it totally clear what you have to pay to buy property which is mostly the costs associated with stamp duty.”

Likewise, Lowcock said: “It is generally a good decision as previously you could end up with swing pricing, which not only confuses some investors but also can create short-term opportunities.

“Open ended property funds are just not suited to short-term investments and switching to the full spread approach should help discourage this, while giving greater transparency for investors. It should also help them understand and appreciate the costs associated with buying and selling large properties.”

LGIM leads the way

McDermott explained that LGIM also has this pricing model. It is a fund which runs an offer price for entry and a bid price for exit, rather than swinging between the two, he added.

“I am not sure it will put pressure on the rest but it does continue the debate,” he said.

Simon Hillenbrand, head of UK retail at Janus Henderson, said: “Our main priority has always been our clients and we believe that this pricing approach encourages investors to treat property as a long-term investment.

“Over time, new investors would expect to recover this cost through the income paid by the fund and the potential capital gain.”

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