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M&G and Aviva suspend property funds following Brexit vote M&G and Aviva suspend property funds following Brexit vote
(about 2 hours later)
M&G Investments has followed two other major finance firms and suspended trading in the UK's biggest property fund following the Brexit vote. M&G Investments has followed two major finance firms and suspended trading in the UK's biggest commercial property fund following the Brexit vote.
M&G said withdrawals from its £4.4bn fund had risen markedly because of "high levels of uncertainty in the UK commercial property market" since the outcome of the referendum. Firms said high levels of uncertainty caused by the referendum have led to investors rushing to withdraw funds.
Earlier, the UK's biggest insurer, Aviva, halted its £1.8bn property fund. M&G closed the doors on its £4.4bn fund after Aviva and Standard Life halted trading in similar schemes.
Financial regulators have said they will reassess such property funds. Regulators have put such schemes under review amid warnings that commercial property was a key risk to the economy.
Three of the biggest providers of the funds - which offer investors returns from commercial property - have now frozen trading after Standard Life suspended its £2.9bn UK property fund on Monday. M&G, part of UK insurer Prudential, said it had seen a "marked increase" in customers trying to pull out of the portfolio - which includes retail and office space - after the referendum result.
Aviva and Standard Life's fund suspensions come amid widespread major falls in property-related shares since the referendum result. As with Aviva and Standard Life, the firm said investors would be better protected by preventing any further withdrawals.
Housing firms Berkeley Group, Barratt Developments and Persimmon all fell more than 6% on Tuesday, while shares commercial property firm Land Securities dropped lost 3%. Aviva, the UK's biggest insurer, earlier halted its £1.8bn property trust, a day after Standard Life blocked access to its £2.9bn fund.
'Dominos' 'Matter of time'
Aviva said customers would have to wait to pull money out of the Aviva Investors Property Trust because of "a lack of immediate liquidity". Laith Khalaf, an analyst at stockbrokers Hargreaves Lansdown, said: "The dominos are starting to fall in the UK commercial property market, as yet another fund locks its doors on the back of outflows precipitated by the Brexit vote.
"The dominos are starting to fall in the UK commercial property market, as yet another fund locks its doors on the back of outflows precipitated by the Brexit vote," said Laith Khalaf, an analyst at stockbrokers Hargreaves Lansdown.
"It's probably only a matter of time before we see other funds follow suit.""It's probably only a matter of time before we see other funds follow suit."
It takes time to sell commercial property to meet withdrawals, particularly as investors have been heading for the door in the run up to the EU referendum and in the aftermath, he said.It takes time to sell commercial property to meet withdrawals, particularly as investors have been heading for the door in the run up to the EU referendum and in the aftermath, he said.
The last time Standard Life stopped investors taking money out of its UK real estate fund was during the financial crisis in late 2008. The last time Standard Life stopped investors taking money out of its UK real estate fund was during the financial crisis in late 2008, while Aviva has never previously done so.
Andrew Bailey, chief executive of the Financial Conduct Authority, said of the suspension: "I think it does point to issues that we need to look at in the design of these things." 'Illiquid'
The Bank of England is also monitoring the behaviour of investors in open-ended commercial property funds, because they see it as one of the risks to UK financial stability. Andrew Bailey, chief executive of the Financial Conduct Authority, said the regulator was in close contact with many of the firms.
Aviva and Standard Life offer two of the biggest UK property funds. "I think it does point to issues that we need to look at in the design of these things because it comes back to my fundamental point about holding illiquid assets in open end funds that revalue and are required to be revalued," he said.
There are approximately 50 in total, with fund managers Henderson and Legal & General also big players. The Bank of England is also monitoring the behaviour of investors in the funds, as it sees commercial property as a key risk to UK financial stability.
There are approximately 50 UK property funds in total, with fund managers Henderson and Legal & General also big players.
The suspensions come amid widespread falls in property-related shares since the referendum result.
Housing firms Berkeley Group, Barratt Developments and Persimmon all fell more than 7% on Tuesday, while shares in commercial property firm Land Securities lost nearly 4%.
Shares in the UK's biggest house builders have now dropped more than 30% since 23 June.