Property funds unprepared for Brexit struggles, claims watchdog

No adequate planning or clear strategy put in place to mitigate turbulence in the aftermath of Brexit, FCA says

Asset managers must plan more, following the aftermath of Brexit which caused a freeze up of over £18bn worth of investment funds (Getty)

Asset managers did not plan properly or have clear procedures for valuing their property funds under stressed market conditions such as those in the aftermath of Britain's vote to leave the European Union, the UK's markets watchdog said on Thursday.

Several property funds were suspended after the vote as a wave of investors tried to pull their money out amid speculation that Brexit would hit commercial property prices.

The Financial Conduct Authority (FCA) examined the sector's responses and published its findings on Thursday, saying property funds should take external events into account as part of their planning for possible market squeezes.

"In general, authorised fund managers did not adequately plan, or have clear policies and procedures, for valuing their property portfolios under stressed market conditions," the FCA said.

"We found that the use of suspensions, deferrals and other liquidity management tools were effective in preventing market uncertainty from escalating further," the FCA said.

Firms could be clearer in their communications, including to end-customers, following significant market events, it added.

Some unit-linked or pooled asset providers "did not appear to understand fully the underlying portfolio of open-ended funds they were investing in".

All firms that suspended funds or made other changes should review how they responded to the Brexit vote turbulence.

"In some cases, individual firms will have to implement remediation measures to ensure they comply with our expectations and requirements," the FCA statement said.

The FCA said it was still looking at the broader issue of open-ended funds' investments in illiquid assets, including whether the rules need changing.

Within three weeks of the Brexit vote last year, some seven funds had pulled down the shutters, leaving over £18 billion ($23.4bn) frozen in the biggest seizing up of investment funds since the 2008 global financial crisis.

Funds affected included those run by Columbia Threadneedle , Aberdeen Asset Management, M&G Investments, Aviva Investors, and Standard Life Investments.

UK based openended property funds - meaning no restrictions on putting in or taking out money - had £35bn invested in commercial real estate at the start of 2017, the watchdog said.

Bloomberg