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On Tuesday the rating agency said investors in open-ended UK property funds faced a “growing risk” that funds would suspend trading units next month. Funds were “unlikely to be able to meet a potential surge in redemptions by selling assets, given the illiquidity of commercial property”, Fitch added.
Property funds are facing increased outflows as investors fear the impact of Brexit on the sector and as they battle sliding values within their portfolios.
Fitch said market volatility in the coming weeks could be even “more severe than the reaction to the referendum result, particularly if there is a no-deal Brexit” and said it did not think funds had enough cash to remain trading under such a scenario.
“We do not think liquidity is strong enough to prevent withdrawal restrictions should investors fear a steep market drop due to Brexit developments in the coming weeks,” said Fitch.
Property funds have been hit with outflows totalling hundreds of millions in recent months, causing the financial regulator to step up its monitoring efforts.
In December investors pulled £315m from property funds, comparable to the volume of redemptions in the two months after the 2016 vote to leave the EU, when funds “gated” to investors and trapped their money. [...]
Full article on Financial Times (subscription required)