New Star and Scottish Equitable have today announced that they are experiencing liquidity in their property funds problems as many investors opt to divest assets, thereby impacting heavily on the cash reserves of two of the markets major players. Scottish Equitable has delayed cash redemptions from its commercial property funds for 12 months after panic selling caused by a slump in commercial property prices. The announcement is likely to affect 129,000 investors in its two major property funds but is not set to influence regular income payments already being made.
This was followed by the news that shares in New Star Asset Management had fallen by 40% in early trading after it admitted an exodus of up to £500m from its funds, again citing the sub-prime fall out, the sharp downturn in UK commercial property and “badly positioned” European and UK mutual funds. The total value of its assets under management has dropped by £1.6bn since the end of June 2007. Illiquidity in commercial property funds is understandable if lots of investors try and redeem them holding at the same time – one cannot simply sell multi-million pound properties at the click of button. In light of this Scottish Equitable’s reaction can be seen as sensible since a fire sale of commercial property assets to cover redemption calls could be regarded as bad management. Of course this does not provide much comfort to investors who wish to get their hands on their money quickly.
Despite the gloomy outlook this is not a time to panic. Although it may be worthwhile private investors considering their options it is not a time to pull out of the market altogether. Putting New Star’s Property fund to one side, certainly investors who hold stakes in the group’s UK Growth, Higher Income and European Growth funds may wish to consider their holdings - their peer group universe is very competitive and there is no shortage of quality alternatives.
Remember, changes in the market can provide opportunities for savvy investors who base their investment decisions on good research and advice. Remaining in the market for the long haul rather than reacting in a knee-jerk fashion to trends or fluctuations is more likely to yield greater returns on your money.