Aviva Investors said it had become “increasingly challenging to generate positive returns while also providing the necessary liquidity to re-open the fund”.
The fund barred investors from withdrawing their money in March of last year as the UK property market was rocked by the coronavirus (COVID-19) pandemic.
A long-standing criticism of property funds has been the difficulty in liquidating the underlying assets – properties – in the event of a surge in demand for redemptions, and the response of many companies, including Aviva was to effectively freeze the funds.
Some companies, such as M&G, Columbia Threadneedle and Aberdeen Standard Life, have since reopened their funds for business but Aviva took the view that the asset sales required to provide ongoing liquidity “would compromise the portfolio by limiting our ability to maintain diversification and deliver the fund’s stated performance objectives over the long term”.
Aviva said the cash would be returned to the fund’s investors in “a fair and orderly manner”. Two feeder funds to the main fund are also to closed down.
The Aviva UK Property Fund has around £367mln in assets. According to interactive investor, investors in the fund will get back around 40% of the money they invested in the fund.
“The shortcomings of open-ended funds when it comes to investing in illiquid assets is no secret – and this closure is unlikely to be the last. While investment trusts are a better, if imperfect solution to the liquidity issue, the regulator doggedly still looks for workarounds that will use the open-ended structure. The jury is likely to remain out,” said Kyle Caldwell at interactive investor.
“Aviva cited that their value assessment also suggests it is in investors best interest to wind up the fund. The problem is, fund management groups won’t always come to this conclusion or take strong enough action. The Aviva wind up comes after multiple headwinds, including a year-long suspension, he added.
Earlier this month, the City watchdog, the Financial Conduct Authority (FCA), postponed its verdict on a possible reform of the rules for investing in property funds.
The FCA revealed its decision would not be announced until the third quarter of this year, at the earliest.
The watchdog has been investigating property funds after a number of them temporarily suspended withdrawals in 2019 on concerns that property assets could not be sold fast enough to meet redemption requests from investors.
The FCA is pondering whether to introduce notice periods of up to six months for withdrawals.