Janus Henderson and its property advisers have “been exploring various options” for its UK Property Paif, including selling the “entire portfolio to a single purchaser”, a spokesperson confirmed to Portfolio Adviser.
No decision has yet been taken.
The spokesperson said: “Notably, this is in context of the current strength in the UK commercial property market and the ongoing regulatory discussions regarding the liquidity mismatch that exists in daily-dealing physical property funds.”
The company “remains committed to keeping investors informed of developments and expect to be able to provide a further update by the end of March”.
See also: Majority of retail investors would ditch property funds if FCA implements notice periods
Underperformance a perennial problem
Before the potential sale had been confirmed, Quilter Cheviot property research analyst Oli Creasy described the rumours “as something of a surprise”.
“The fund has made it through the difficult period in 2020 when it was forced to close by new FCA rules and has since produced good returns: 12.4% in the 12 months to January 2022, which was ahead of its peer group.”
In the broader context, Creasy added that those returns were “good, not great”, given the MSCI IPD property index was up 14.8% over the same period.
“This underperformance has been a perennial problem for property funds,” he added, “which are generally expected to carry a cash weighting of 15-20% to manage possible redemptions.”
Portfolio appears relatively attractive
The UK Property Paif and its feeder fund reopened on 24 February 2021, almost a year after it was forced to suspend dealing.
Investors now face uncertainty about how to proceed, given a further update is expected “by the end of the month”.
Quilter Cheviot’s Creasy said the “temptation in this situation is to submit a redemption request asap and try and beat the crowd” but warned “it may not be in the investors’ best interests”.
“Liquidity could well be a concern in the coming months, particularly if other investors rush for the exit, but the asset sales may not prove to be a particularly long process anyway.
“We note that the Janus Henderson portfolio appears relatively attractive, with over 40% of the property classified as industrial, with a further 8% in retail parks which are once again proving popular with investors.”
He added that exposure to traditional retail is less than 2% and, if put up for sale, “it is quite possible that they could be sold promptly and potentially at a premium to the fund’s valuation, representing possible upside for investors willing to wait and see”.
A canary in the coalmine?
With a fund size of £1.04bn, as of January 2022, Creasy said the performance figures are not remarkable, but they are also not remarkably bad.
“The Aegon fund, which announced its liquidation in 2021, was expected to have AUM of just £250m once all pending redemptions had been satisfied, and such small size did appear vulnerable, making it difficult to diversify across many different properties (and property types), and unable to trade in larger assets at all,” Creasy said.
But said it was unlikely these “limitations” would have been such an issue for the Janus Henderson fund, given its size.
“If £1bn is a limit below which open-ended property funds find it difficult to operate, then Janus will not be the only manager considering their options.”
He pointed to the £600m Columbia Threadneedle fund which delivered lower returns. Likewise, the M&G fund, which is also around £1bn, as of January.
“The merger between Aberdeen and Standard Life’s funds has resulted in a £1.6bn portfolio which has better long-term prospects, and the highly-rated L&G fund has over £2.3bn of assets, making it arguably the most secure. L&G’s fund is also the only one to have outperformed IPD over the past year, with +18.2% returns in the 12 months to January 2022.”
See also: Aviva Investors throws in the towel and closes frozen UK property fund
