Retail investors in Friends Provident’s £1.2bn ($2.4bn) UK commercial property fund have been told it could take up to six months to withdraw money because of a cash liquidity crisis.
Coming in the wake of similar moves at institutional funds, the step is significant as it is the first time retail investors in property funds have been forced to wait for redemptions since the last property crash more than 15 years ago.
Friends on Thursday said 118,000 policyholders in its pensions and life property fund would be affected by the decision, after liquid assets dropped to just 5 per cent this week. The Financial Services Authority has also been told.
UK commercial property funds have faced a growing liquidity crisis since the summer. Falling property values have been met with a wave of redemptions as investors look to escape the sector. Many funds only held a limited amount of money to pay back investors, meaning they need to sell property to cover withdrawals.
“We do not want to be forced into a hurried firesale of our property assets,” Friends said. “That would be the worst-case scenario for our investors.”
The Friends funds are typically held through popular retail savings vehicles, such as personal pensions, stakeholder pensions, self-invested pensions and investment bonds.
Automatic switches and existing regular withdrawals from investment bonds will be honoured, and it will pay out death and critical illness claims, maturities, retirement, and in divorce cases.
Last month, a range of institutional funds imposed limits of up to a year after seeing liquidity fall sharply.
Friends on Thursday blamed the credit squeeze for the drop in investor demand.
“In line with many other companies, the market decline has led to significant and sustained withdrawals,” added the company, saying the necessary property sales could take several months.
“This is awkward if people were hoping to withdraw money but the long-term personal pension holders should stay calm,” said Mark Dampier, of adviser Hargreaves Lansdown.
So far, no UK property unit trusts have imposed similar restraints, though some are nearing critical liquidity levels.
Skandia this week confirmed that liquid assets – cash and shares – in its trust had also dropped to 5 per cent at the end of November, from 9 per cent in October.
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