SWITZERLAND - Swiss bank UBS has frozen its $6bn (€4.4bn) global property fund because it could no longer handle the high number of redemption requests.
The USB Wealth Management Global property fund, which experienced CHF49bn (€31bn) worth of cash flows in the third quarter of 2008, has been temporarily closed until the end of 2009 to safeguard investors' interests.
Tatiana Togni, a spokesperson for UBS, said: "Due to the strained liquidity situation in the market as a whole and the longer process for selling real estate, the fund can no longer handle all redemption requests without forcing remaining investors to suffer losses from emergency sales. In such a situation, it is a fund manager's responsibility to temporarily suspend the fund in the best interest of all the investors."
The Zurich-based bank said it was not possible to sell commercial real estate assets in the fund to help alleviate the problem because the Global Property Fund managers considered the current market prices unreasonable and selling process to be too slow.
"The financial crisis has led to credit market distortions reducing the availability of financing to property investors, and increasing financing costs," said Togni.
"Negotiations to sell large commercial properties are complex and normally take at least four to six months to complete," she added.
The suspension period will give managers more time to sell direct investments in commercial properties at reasonable prices when market conditions stabilise, says Togni.
The fund, created in November 2004, was opened to wealth management clients with assets under management of as little as CHF100,000 (€63,274) and concentrates on investing in commercial real estate. Investors who had a wealth management investment mandate would invest 2-7% of their assets in the fund.
Only investors choosing to exit the entire mandate will be negatively affected by the fund's suspension and will have to wait to receive their real estate component until the fund reopens in 12 months' time.
"It actually only has a real impact on clients that decides to pull out the whole mandate product. That means the real estate component will be paid out to the client at a later point in time," said Togni.
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