The Threadneedle UK Property Authorised Investment Fund (PAIF) is to lift its trading suspension and is expected to be followed by other open-ended property funds, after the Royal Institution of Chartered Surveyors (RICS) recommended a general lifting of the ‘material uncertainty clause’.
Columbia Threadneedle said investors would be able trade in the £1bn (€1.09bn) fund from 17 September after its independent valuer CBRE lifted its material uncertainty clause.
Today, RICS provided an update to all UK property valuers, recommending the lifting of material valuation uncertainty on all UK real estate apart from “assets valued with reference to trading potential”.
RICS applied the material valuation uncertainty in March, prompting UK open-ended property funds to follow incoming rules set by the Financial Conduct Authority (FCA) that called for the suspension of trading if more than 20% of a fund’s portfolio had material uncertainty attached to it.
The Material Valuation Uncertainty Leaders Forum forum, which was setup by RICS to respond to the global COVID-19 pandemic and its impact on valuations, said: “Although it has been recommended that material valuation uncertainty should no longer apply to most sectors and assets, the decision on whether or not to apply the material valuation uncertainty declaration in any sector, should be based on individual valuer judgement and in each case will depend upon the circumstances of the valuation.”
It explained that, for assets valued with reference to trading potential, in particular “some leisure and hospitality assets”, it was “too early to properly assess trading potential and hence value with a sufficient degree of certainty.”
Gerry Frewin, fund manager for the Threadneedle PAIF, said: “We appreciate that suspending dealings in the fund may have caused some inconvenience for our clients, however the decision to suspend dealing meant that no unitholders would be disadvantaged and ensured the fair treatment of all investors at a time of exceptional market uncertainty.
“While short-term property returns turned negative during the first half of 2020 due to COVID-19 and the resulting uncertainty in markets and economies, capital volatility has been easing, and the longer-term case for property remains compelling on an income and portfolio diversification basis.”
Paul Richards, managing director of the Association of Real Estate Funds, said: “We welcome the lifting of the material uncertainty clause as one step on the path back to a normally functioning commercial property market.
“Fund suspension is not undertaken lightly and is done in the best interest of savers and investors. It is for individual funds to decide when to re-open having considered their investors’ needs and their liquidity position.”
The FCA is currently consulting on a reform of open-ended property funds in the UK and has proposed the introduction of notice periods for redemptions.
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