Nathan Sweeney, a senior investment manager at Architas, says that one year on from the Brexit vote, most direct property managers have been surprised at how well the market has held up.
He notes the fear of a significant write down in property values never materialised, while the weaker pound that followed the vote has if anything encouraged more overseas institutional money into the space, looking for opportunities.
“Recent conversations with UK managers backs this up and there remains money chasing selected assets,” he says. “Year-to-date 2017 returns have been ahead of the start of year consensus, if not particularly exciting.”
The concern for Sweeney is that despite a lot of press headlines and debate during the last (mini) crisis about the risks of offering daily liquidity in an illiquid asset class, nothing has fundamentally changed in the structure of open-ended funds.
“So if the previous panic was not a one off and some sort of other major news event or continued UK political uncertainty causes investors to once again rush to withdraw cash from the sector, this would not be a healthy situation to be in,” he says. “However, hopefully higher cash levels [held by managers] and investor experiences from last time will dampen these outflows.”
Sweeney recalls that post-Brexit property funds quickly regained the vast majority of their marked down prices, meaning that if investors bought at that time, while others were selling, they would have done rather well.
“Having higher cash levels, and lower returns in a rising market, is going to have to be accepted as the new accepted face of investing in the asset class,” he says. “If you are not prepared to accept this then perhaps it’s best to stay away or invest in a more liquid form of property such as REITs and take the volatility that goes with it.”
While Metcalfe supports the open-ended structure of property funds, he still expresses concerns about the retail investors who use them.
“We would question the real life benefit of having the ability to sell assets at crisis levels,” he says. “Unfortunately, the retail investor if left to their own devices will often listen to the siren call of blind panic and media headlines and cash out or fear losing everything.
“This lack of patience exactly at the wrong time is one of the reasons why our investments are only marketed via financial advisers.”
