The storm from the UK debt market is far from over, and investors are now frantically pulling out of UK property funds.
After the announcement of the tax cut plan thus triggering market turmoil, last week, the British Prime Minister Truss announced to abandon the abolition of the 45% top rate of income tax, so that some investors once thought that this turmoil will end.
However, the trigger of the tax cut plan not only made the UK pension funds continue to sell billions of pounds worth of assets to cover the margin, the frenzy of selling is also spreading to the UK property funds: property funds tracked by Calastone, a fund trading provider, showed that in just 10 days after the UK government announced the tax cut plan, more than 100 million pounds were withdrawn from property funds, almost eight times the average number of withdrawals in the previous three weeks. This is almost eight times the average number of withdrawals in the previous three weeks.
Analysts warned that this constant withdrawal could drive property valuations further down and worsen the situation. UBS expects the total property values in this round of selling to have fallen by 20 to 25 percent from earlier this year.
According to media reports, Edward Glyn, head of global markets at Calastone, attributed the sell-off to bonds becoming more attractive, investors' concerns about a possible recession in the property market, and rising market interest rates making refinancing more risky.
Roger Clarke, head of IPSX, said real estate funds usually give investors the opportunity to pull out in a day.
Funds are forced to sell their best assets. Then redeeming investors get redeemed, and if valuations fall, the rest of the fund suffers losses. Thus, rational investors do make redemption requests.
Clarke adds that the most likely entrants to property funds are likely to be institutions with sufficient financial resources not to be "seduced" by the attractiveness of the debt market: "I fear we are going to see a huge flow of UK assets to sovereign wealth and private funds overseas, and UK institutions and savers are once again losing their iconic assets."
Pension funds are behind this?
For months, UK defined benefit pension funds, which are major investors in property funds, have been reducing their holdings of real estate assets as rising interest rates and slowing economic activity have put pressure on the property market; falling UK government bond prices have also increased the proportion of real estate in pension fund portfolios, prompting some funds to reduce their investments in it.
Subsequently, the plunge in UK government bond prices worsened the situation, and pension funds faced huge margin calls and had to once again accelerate the pace of asset sales to cover this position.
According to media reports, Calum Mackenzie, an investment partner at pension advisory firm Aon, said
I think this is part of a long-term trend for pension funds to reduce risk by selling less liquid assets. The current deterioration in short-term liquidity for pension funds has exacerbated this trend.
Industry sources say the sharp deterioration in loan terms has made it difficult to close deals on unlisted assets. Funds holding hard-to-sell assets are in a particularly difficult position this year, with volatility in both stock and bond markets prompting investors to rush to redeem cash.
In addition, rapid divestment has caused problems for some property funds, which can take months to sell off properties in their portfolios to complete payments to investors.
Last week, Schroders, BlackRock and Columbia Threadneedle all imposed restrictions on property fund redemptions to slow the pace of investor redemptions and allow them to sell properties in an orderly fashion.
Schroders postponed some redemptions scheduled to expire on October 3 until next July, while Columbia Threadneedle also restricted investors to monthly rather than daily withdrawals, citing "liquidity constraints due to recent market volatility and the subsequent increase in redemption requests"; meanwhile, in the second quarter Meanwhile, BlackRock, the world's largest asset manager, also imposed redemption restrictions on its £3.5 billion BlackRock UK Property Fund after receiving a large number of redemption requests in the second quarter.
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