St James’s Place suspended trading of its property fund due to a spike in redemption requests from investors.
On Monday, the UK’s largest wealth manager said that it has prevented withdrawals of £829.5mn from the property unit trust since last Friday.
The company has also delayed redemption requests from its £563mn and £838mn pension funds for property. These will now be met in six months.
St James’s Place reported that it was facing a decline in client investments and an increase of withdrawal requests due to the continued vacancies in office space after the Covid-19 Pandemic.
M&G closed its £565mn Property Fund last Thursday after it blamed the “declining interests” of retail investors for the decision.
Canada Life Asset Management had suspended withdrawals a week earlier, claiming that the “overwhelming” majority of its investors wanted to exit.
Tom Beal said that this decision “is intended to prevent the challenge of selling properties quickly in order to generate cash”, according to St James’s Place director of investments Tom Beal.
The fund manager may be forced to sell properties for less than the market value. This could result in financial losses both for the fund as well as its investors.
The suspensions are a result of the mismatch in liquidity between the daily trading offered by the open-ended funds and the amount of time required to sell an asset.
In 2016, a number of UK funds stopped dealing with property after Brexit referendum prompted withdrawals. Then, in 2020, the pandemic created uncertainty over property values.
St James’s Place shares rose by 1.56 percent on Monday. The shares have fallen by over a fifth since the announcement of a new fee structure.
St James’s Place reported that its unit trust, pension property and life funds have had net withdrawals in the amount of £211mn (£211mn), £131mn (£131mn) and £191mn (£191mn) respectively, over the last 12 months.
After the suspension of the property funds, the group temporarily reduced the annual management fee for unit trusts by 0.15 percentage point. The total charge was then dropped to 1.89 percent.
The M&G Fund was suspended from trading on October 19. Its assets will be sold, and investors will receive their money back, a procedure that could take up to 18 months. The management fees have been cut from 0.8 to 0.6 percent.
In July, global regulatory suggested fund managers run funds with illiquid investments charge clients to redeem the investment in order to dampen an exit rush.