GLOBAL - Schroders has warned investor redemptions in its Exempt Property Unit Trust (SEPUT) could be reduced by as much as 25% if institutional investors withdraw their assets during the current property market downturn.
Officials at the asset manager have confirmed it could be forced to reduce an investor's exit payouts to the £1.4bn (€1.8bn) fund if they choose to withdraw their assets while the property markets are relatively illiquid, as a sizeable redemption would force it to sell property quickly and for considerably below market value.
In a statement, William Hill, head of Schroder Property, said reducing the value of units was "about being fair to all investors in this institutional property fund" as a significant withdrawal would penalise other investors while property prices were unfavourable to sellers.
"There is not a normal functioning market for property at present and providing short term liquidity - selling property assets for cash - is a challenge and comes at a price," said Hill.
"We have taken the advice of independent valuers in setting the redemption price and the small number of institutional unit holders wishing to redeem can decide whether to take this price or withdraw their redemption. We remain determined to provide this liquidity unlike funds which have invoked long redemption deferrals. Regrettably, selling quickly into a dysfunctional market has to be paid for. In the interests of our long term institutional investors in the fund, the cost of this liquidity should be borne by those requiring the liquidity," he added.
Schroders has not followed the direction of many other investment houses and prevented investors from withdrawing assets but it did first act in November 2007 to limit the damage by imposing a 12.5% reduction in the value of EPUT units where there were redemptions.