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Aviva halts trading in its property fund as Brexit contagion spreads Property funds halt trading as Brexit contagion spreads
(about 2 hours later)
Aviva Investors has suspended dealing in its £1.8bn property fund a day after Standard Life made the same move, escalating fears about the UK post-Brexit property market. Two more commercial property funds have stopped investors from withdrawing their cash, escalating fears about the impact of the Brexit vote on the UK economy.
The suspension sent the pound to a new 31-year low against the dollar, falling 1.8 cents to $1.3090 as the Bank of England said economic risks caused by the referendum had “begun to crystallise”.
Related: Brexit crisis: Aviva suspends property trust as Mark Carney warns of 'crystallising' risks - business liveRelated: Brexit crisis: Aviva suspends property trust as Mark Carney warns of 'crystallising' risks - business live
Aviva blamed “extraordinary market circumstances” for its decision to halt withdrawals by investors in the fund. M&G, the fund management arm of insurer Prudential, suspended its £4.4bn fund this afternoon, citing an increase in redemptions since the referendum. The move came hours after Aviva Investors blamed “extraordinary market circumstances” for its decision to halt withdrawals by investors in a £1.8bn fund, which suffered a surge in requests by backers to redeem their investments because of fears of a property crash after Britain voted to leave the EU.
The fund had suffered a surge in requests by investors to redeem their investments because of fears of a property crash after Britain voted to leave the EU. Their decisions came 24 hours after Standard Life blocked investors from taking cash out of its £2.9bn commercial property fund.
The suspensions came on another day of drama on the financial markets, 11 days after the vote to leave the EU wrong-footed markets and sparked political turmoil. Among developments:
• The pound plunged to a new 31-year low against the dollar, falling 1.8 cents to $1.3090.
• A closely watched survey of the services sector, showed a worse-than-expected reading of 52.3 in June, down from 53.5 in May. A reading above 50 indicates growth.
• The Bank of England warned that the economic risks caused by the referendum had “begun to crystallise” as it eased regulations on banks to allow them to release up to £150bn of loans to households and businesses.
• Chancellor George Osborne held a summit with the heads of the major lenders who pledged to avoid a new credit crisis by making loans available.
A spokesman for Aviva Investors said: “The extraordinary market circumstances, which are impacting the wider industry, have resulted in a lack of immediate liquidity in the Aviva Investors Property Trust. Consequently, we have acted to safeguard the interests of all our investors by suspending dealing in the fund with immediate effect.”A spokesman for Aviva Investors said: “The extraordinary market circumstances, which are impacting the wider industry, have resulted in a lack of immediate liquidity in the Aviva Investors Property Trust. Consequently, we have acted to safeguard the interests of all our investors by suspending dealing in the fund with immediate effect.”
Aviva said the suspension would give the fund time to sell assets to remain liquid and meet obligations to investors seeking to redeem their holdings.Aviva said the suspension would give the fund time to sell assets to remain liquid and meet obligations to investors seeking to redeem their holdings.
Related: Standard Life shuts property fund amid rush of Brexit withdrawalsRelated: Standard Life shuts property fund amid rush of Brexit withdrawals
Standard Life closed its £2.9bn commercial property fund on Monday in what is thought to be the first such move since the financial crisis. It did so after retail investors rushed to cash in their investments after the referendum result raised fears over property values. While the Bank of England was stressing that markets were functioning well in the wake of the referendum result, the focus has turned onto the commercial property sector following the move by Standard Life to close its commercial property fund on Monday. That was thought to be the first such move since the financial crisis, and has prompted concerns that more funds could be forced to prevent investors withdrawing their cash.
Funds investing in property have been popular with investors looking for better returns than cash or bonds. But with fears of a post-Brexit recession mounting investors are concerned that the value of office blocks, retail parks and factories could plunge.Funds investing in property have been popular with investors looking for better returns than cash or bonds. But with fears of a post-Brexit recession mounting investors are concerned that the value of office blocks, retail parks and factories could plunge.
There were signs of strain for the funds last week when Standard Life and rivals Henderson, Aberdeen and M&G reduced the amount investors cashing in holdings would get back by up to 5%. Following Standard Life’s suspension of its fund, shares of property companies and fund managers fell heavily on Tuesday.There were signs of strain for the funds last week when Standard Life and rivals Henderson, Aberdeen and M&G reduced the amount investors cashing in holdings would get back by up to 5%. Following Standard Life’s suspension of its fund, shares of property companies and fund managers fell heavily on Tuesday.
Laith Khalaf, an analyst at City firm 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. It’s probably only a matter of time before we see other funds follow suit.” Laith Khalaf, an analyst at 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. It’s probably only a matter of time before we see other funds follow suit.”
On Wednesday morning, the Bank of England governor, Mark Carney, had used his twice-yearly assessment of risks to the financial system to warn that “adjustments in commercial real estate could tighten credit conditions for UK business”.
Flows of foreign investment into commercial property had fallen 50% in the first quarter of the year, he said.
He added: “The number of vulnerable households could increase due to a tougher economic outlook and a potential tightening of credit conditions. In particular there is growing evidence that uncertainty about the referendum has delayed major economic decisions, such as business investment, construction and housing market activity.”
But, he said, the Bank was taking steps to ensure credit could keep flowing to businesses and households by relaxing the amount of capital banks needed to hold. Unlike in 2008, banks could be part of the solution, not the problem, Carney said.
Meanwhile, Osborne issued a joint statement with the heads of the major lenders, in which they said they would make lending available.
“While we are realistic about the economic challenge facing the country after the referendum result; we are reassured that collectively we can rise to it. The last time Britain faced an economic shock the banks were at the heart of the problem. Thanks to the hard work of rebuilding the banks, making them stronger and safer, and the arrival of new challenger banks – banks and building societies are now part of the solution,” the banks and the chancellor said.