Aberdeen Asset Management has introduced a 17% redemption penalty on its open-ended UK property fund, which has both retail and institutional investors.
The company said it had made the “dilution adjustment” in a bid to continue to provide liquidity in the fund at a price reflecting “rapidly changing commercial property market conditions”.
Aberdeen said it was “mindful of the fact that a 17% impact on fund pricing may lead shareholders who have placed redemption orders to reconsider their decision”.
The fund had originally suspended trading for 24 hours – so “shareholders who have placed trades have the option to withdraw that instruction if they wish” – before extending the deadline to noon on July 11.
Aberdeen has adjusted the dealing price to avoid the fund having to sell properties in the market at significant discounts.
The company said it has been in regular contact with its fund’s independent valuation adviser, gathering evidence on market pricing.
Martin Gilbert, CEO of Aberdeen, said “sellers requiring liquidity are having to market properties at sometimes significant discounts to their recent valuations”.
He said it was “imperative that we protect remaining holders by fairly reflecting the impact of short-term trading on values provided to redeeming shareholders”.
Aberdeen said the dilution adjustment had been “imposed solely to reflect the need to dispose of properties quickly in order to provide liquidity”.
The company said the diluted price is “not a reflection of what we believe is achievable in a stable market where there is not undue pressure to sell assets”.
It said: “Accordingly, if future trading in the fund reverts to lower levels, we would likely not apply the dilution adjustment, and the price would revert to a level reflective of longer-term property values.”
Aberdeen said the fund’s portfolio “was positioned defensively” prior to the UK referendum on June 23, sold all holdings in listed property companies and held the proceeds in cash.
Gilbert said: ”Aberdeen’s property fund continues to hold a good level of cash, which permits us to offer these options to investors.”
Gilbert added: “The property market itself may take some time to find its level but we believe that the same factors that made property a good long-term investment yesterday remain true today.”
For further analysis on what the suspension of trading property means for institutional investors, click here