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On the morning of 24th June 2016, as trading resumed after the referendum result, most of the UK daily dealing open-ended property funds for retail investors faced significant levels of redemptions prior to the midday dealing point. This had abated by the afternoon and had not affected all funds.
The most immediate reaction of fund managers was a recognition that the valuation of the underlying assets was lagging the sudden market drop. Henderson was the first to move, adjusting the pricing at which investors could redeem units in its retail fund by making a reduction to asset value from immediately after the midday valuation point on 24th. This was applied to redemptions submitted in the previous 24 hours so that all investors who submitted redemption notices after the referendum result was known were subject to the adjustment. Other managers followed over the next few days.
However, with the referendum so close to the quarter-end, redemptions rose again on 30th June and 1st July as wealth managers and others reduced their exposure to real estate as an asset class in quarter-end allocation decisions. It was this that triggered fund suspensions. Standard Life was the first on 4th July. Many others, but not all, followed.
Aberdeen Asset Management introduced a further, substantial reduction in the redemption price for its open-ended fund to reflect the significant discount offered in the asking price to allow rapid asset sales to meet redemption requests. As this affected the price of the assets being sold in forced circumstances rather than the value of the portfolio as a whole, this adjsutment applied to the redemption price of departing investors rather than to the net asset value overall.
Over the summer of 2016, those funds that had suspended disposed of assets to raise enough cash to meet redemptions and reopen.
Columbia Threadneedle Investments announced on 12 September 2016 that it would reopen its retail fund for trading on 26th September 2016. In the subsequent weeks other managers announced that their funds would also reopen for trading, Aviva Investors being the last to do so.
Our independent report for the Association of Real Estate Funds (AREF) reviewing the behaviour of funds for retail investors was published in April 2017. You can find the report and associated materials here.
At the same time as we were preparing our report, the FCA published its own discussion document, DP17/1, in February 2017 and open for comment until May 2017. It was well over a year before the next step from the FCA, the publication of its consultation on open-ended funds and illiquid assets (CP18/27), published in October 2018 and open for comment until 25th January 2019.
The CP18/27 proposals covered a number of areas.