St James’s Place shutters property funds amid sector downturn
St James’s Place has begun to wind down its three property funds as the sector struggles to make it past the blows it sustained during the coronavirus pandemic.
The three funds, which operate as unit trusts, pension and life funds, will shutter over the next two years, with regular payouts to investors in the funds.
UK property funds were forced to confront their shortcomings in October last year when M&G suspended its £565bn Property Portfolio due to structural issues in the sector.
The closure highlights the tough time that open-ended property funds have had since the coronavirus pandemic, with the funds struggling to operate with sufficient liquidity and a falling demand for office space.
Investors pulled almost £5bn from the funds in the three years up to the M&G closure, with almost £100m alone withdrawn in the month before the closure.
“Total assets in the IA [Investment Association] direct property sector have shrunk considerably in the last six years,” a St James’s Place spokesperson told City PM.
Almost half of redemptions came from the Abrdn UK Real Estate fund, which has since pivoted to a global investment mandate.
St James’s Place cited similar issues as many others in its decision to close the funds today, stating that “investors have remained increasingly cautious about property funds with the significant change in working patterns”.
It also pointed to proposed changes to regulation, which would introduce notice periods for funds holding assets that can take time to sell, further turning investors off the sector.
Following the announcement of the closure of M&G’s property fund last year, St James’s Place suspended its property unit trust to increase liquidity, and deferred withdrawals and switch-outs in the other two funds.
“These actions were implemented to avoid having to sell properties below their fair market value to generate cash,” the firm said.
The unit trust reduced its annual management charge for investors by 0.15 per cent at the point of suspension, which will continue to apply through the wind down.
“Following the suspension of the fund in October 2023, we have reviewed all options available to us and concluded that the best course of action is to wind down the funds,” said Tom Beal, group investment director at St James’s Place. “Doing so over a period of time will allow us to maximise value for our clients.”
The decision has already received regulatory approval, St James’s Place added.