Pension schemes' immediate reaction to the impact of Brexit uncertainty on property investment is said to be far more muted than retail investors, after four major funds halted trading.
Standard Life Investments, M&G, Aviva Investors suspended trading in their open-ended commercial property funds following large redemptions in response to Brexit fears, followed by Henderson Global Investors' UK Property PAIF this afternoon.
Hymans Robertson senior investment consultant Simon Jones said this morning the level of investor redemptions on institutional property funds is "negligible" based on the enquiries his firm had made, however. This is likely down to pension funds having a much longer time horizon than retail investors.
"There are very few institutional funds with outstanding redemptions and if they are it's at relatively small levels. Pension funds are long-term investors in property and will look to ride out the short-term volatility that will ensue."
It comes as the commercial property sector has come under pressure after the UK's historic vote on 23 June to leave the EU. The Bank of England stated this week it was monitoring the behaviour of investors in open-ended commercial property funds.
Jones believes the managers have made "sensible steps" to suspend trading, pause for breath and protect the interests of all investors in the funds.
While there is a risk of institutional investors wanting to disinvest from property funds, it is unlikely to happen on such a large scale given the reasons for investing in the asset class have not changed.
"There's always a risk you could get a run on the fund, but you'd need to look at what would cause that. You've got to think why defined benefit (DB) and defined contribution (DC) schemes are invested in real estate. Their reasons for investing in it such as to get diversification, long-term income and potentially inflation-linkage, have not really changed."
Where institutional property funds are close-ended there can be no redemptions as investments are made for a fixed term.
Moves by the big retail funds to make adjustments to pricing in light of uncertainty over values have been echoed in some institutional funds.
"A couple of daily priced institutional funds have introduced fair value adjustments to say ‘if we were to trade today it would be worth 4%-5% less'. These funds have daily pricing and so are open to both DC and DB schemes," said Jones.
There is particular concern over the impact of the Brexit uncertainty on the London office market.
However the long lease sector, which provides some inflation linkage and carries a level of investment certainty, will be more resilient going forward, said Jones.
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