Bear Stearns 2.0? UK's Largest Property Fund Halts Redemptions, Fears "Vicious Circle"

Tyler Durden's picture

In the summer of 2007, two inconsequential Bear Stearns property-related funds were gated and then liquidated, exposing the reality of the US housing bubble and catalyzing the collapse of the financial system. While equity markets have rebounded exuberantly post-Brexit, suggesting all is well, British property-related assets have tumbled and, as The FT reports, Standard Life has been forced to stop retail investors selling out of one of the UK’s largest property funds for at least 28 days after rapid cash outflows were sparked by fears over falling real estate values. As one analyst warned, "the risk is this creates a vicious circle, and prompts more investors to dump property."

Standard Life Investments has suspended trading on its £2.7 billion U.K. Real Estate fund, effective immediately, following Brexit, Investment Week reported, citing a statement.

 

The firm has suspended trading on the SLI UK Real Estate PAIF and the SLI UK Real Estate income and accumulation feeder funds.

 

The company cites "exceptional market circumstances" following an increase in redemption requests from the referendum.

The drop in NAV is the largest since Lehman...

 

The £2.9bn commercial property fund will need to sell real estate to raise cash before any money can be redeemed.

And, as The FT reports, the last property crash in the UK in 2007 was preceded by a wave of similar gatings by funds struggling to meet investor demands for cash. They led to firesales of property that added to the pressure on an already falling market.

Last week, Standard Life was one of a handful of UK open-ended property funds to mark down the value of the buildings they own by 5 per cent in the wake of the UK’s vote to leave the EU.

 

In another sign of stress in the sector, some closed-ended property trusts are trading at discounts of more than 10 per cent to their net asset value, which reflects fears over the future of commercial property.

 

“Given the outflows the sector seems to be experiencing, this could well put downward pressure on commercial property prices,” said Laith Khalaf, senior analyst at Hargreaves Lansdown. “The risk is this creates a vicious circle, and prompts more investors to dump property, until such time as sentiment stabilises.”

Retail investors have been attracted to property funds in recent years in part because returns from other types of investment have been so low.

Investors in the fund will be unable to redeem their holding for at least 28 days. The asset manager said the suspension on the fund’s trading will end “as soon as practicable”, and will be reviewed every 28 days.

 

Standard Life said the decision was taken to avoid the fund’s managers being forced to sell buildings quickly in order to satisfy redemption requests, which have increased “as a result of uncertainty for the UK commercial real estate market following the EU referendum result”.

 

“Unless this selling process is controlled, there is a risk that the fund manager will not achieve the best deal for investors in the fund, including those who intend to remain invested over the medium to long term.”

 

Adrian Lowcock, head of investing at Axa Wealth, said the suspension of the fund “brings back to focus the issues with investing in open-ended property funds”.

 

“During the financial crisis many investors were stuck in funds which had closed to redemptions as liquidity dried up,” he said.

A spokeswoman said the fund will be closed for the foreseeable future to give the fund manager more time to sell assets to raise its cash levels at the best possible price. "The suspension was requested to protect the interests of all investors in the fund and to avoid compromising investment returns from the range, mix and quality of assets within the portfolio."

*  *  *

Storm in a teacup we are sure... because once Carney drops the next QE bomb, everything will be fixed, right? Or dead canary in the Brexit contagion coalmine? The big question is - how do you hedge your exposure for th enext 28 days until you might - just might - be allowed to get your money back?

 

As we ironically noted previously, Brexit is a Bear Stearns moment, not a Lehman moment. That’s not to diminish what’s happening (markets felt like death in March, 2008), but this isn’t the event to make you run for the hills. Why not? Because it doesn’t directly crater the global currency system. It’s not too big of a shock for the central banks to control. It’s not a Humpty Dumpty event, where all the Fed’s horses and all the Fed’s men can’t glue the eggshell back together. But it is an event that forces investors to wake up and prepare their portfolios for the very real systemic risks ahead. In other words - it's the beginning of the end.

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I am Jobe's picture

Waiting for the US Housing market to collapse. Won't be long. 

Stroke's picture

It's already peaked...

kliguy38's picture

This is nothing to worry about. I'm sure it will all be fine. Make sure you don't get out of the pan.

knukles's picture

Now if it's found that the property funds had shorted the silver market as a hedge against changing inflationary pressures and it was straining DB's supposedly segregated customer funds.... 

Son of Loki's picture

When the housing market collapses this time will be even bigger better harder wider and best of all "Robust!"

JamesBond's picture

Not everyone gets out of the barn door in time

 

 

jb

Citizen_x's picture

"Fund Halts Redemptions"

"I love the smell of Insolvency in the morning"

Actually it means only insiders will get out with
most of their investment. As for the others, well...

Hype Alert's picture

Wait.  Don't they mean "near" collapse?  It seems admitting they folded never made it into the narrative until well after the fact.

magicdragon's picture

Yup, so when you see the crash coming and you go to get "your" money out, they say "sorry, no can do, we've stopped redemptions".

And then comes bank "bail in's" - what's that, you thought your money was safe with us in a savings/checking account earning crap for interest?  Sorry, we lost it, too bad, so sad.

Zero Point's picture

Property? The exit's not a barn door, it's a fucking mouse hole.

giovanni_f's picture

RE funds are a scam, nothing else. It is telling that our regulators allow these CON-structions to continue to fleece unsuspecting savers. I have limited compassion though with those nitwits who have given their money to these criminals AFTER what happened the last 15 years.

Bay of Pigs's picture

DB hit all time lows again today. How many people, aside from us doomers here at ZH, are paying any attention to this?

jerry_theking_lawler's picture

Who you calling a 'doomer'...I prefer the term 'realist'. 

Bunga Bunga's picture

It's already priced in, lol.

Proofreder's picture

ALL OF YOU MONEY IS BELONG TO US !

What part do you not understand - are you not entertained ?

ShrNfr's picture

It is when it is puked that it matters.

sun tzu's picture

Compare it to gold. Fiat printing will prvent a total collapse

ThrownOffZHTwice's picture
ThrownOffZHTwice (not verified) I am Jobe Jul 4, 2016 3:25 PM

Lots of "Home for Sale" signs popping up in the East Bay.  Just a month or so ago there were none.   Home prices are back up to their 2008 bubble.   I'd guess we are at or near the peak and are primed for the next collapse.

The central planners's picture

A £2.9bn housing fund? How much or should i say how less can you buy with £2.9bn in London? 

The Duke of New York A No.1's picture

Q-WEEEEEEEEEEEEEEEEEEEEEEEE

Scuba Steve's picture

Haha ,,, the next ride name at Disney ...

Q-WEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEE ...

you know, its for the kids.

The Duke of New York A No.1's picture

The coming Q-WEEEEEEEEEEEEEEEEE! ride is for the adult banker class.

Al Gophilia's picture

The other new ride; EeeeeeeeeeUwwwwwwww.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Jul 4, 2016 2:29 PM

I thought Brexit was Bear Stearns 2.0, are we already at version 3.0?  Ugh I hate having to keep downloading updates :-(

Winston Churchill's picture

Anybody shorting CMBS in the US ?

Government needs you to pay taxes's picture

Who in their right mind would EVER own a paper asset where the guys 'managing' the asset could arbitrarily refuse to let you sell?  This is almost as big a joke as thinking your 'cash' is safe when deposited in a 'bank'.  I hope when the shit jumps off, those who are screwed get some payback.  Banksters swinging from lampposts, Gucci loafer wind chimes!

ThrownOffZHTwice's picture

Pretty much any mutual fund is like that.  If you read their prospectus, they can halt redemptions at any time.  When they do, usually some serious shit has hit the fan.

fishpoem's picture

"Gucci loafer wind chimes!" LOL   totally hilarious image...could only be improved by "guys wearing Gucci's as wind chimes"

moneybots's picture

"the risk is this creates a vicious circle, and prompts more investors to dump property."

 

The risk was created by the virtuous circle, which results in the vicious circle.

shovelhead's picture

My old band.

It's a shame what happened to Douggy the Druggie.

max_leering's picture

hey, quit peddlin' fiction

oncemore's picture

looking at the graphics 5% mark down isnot enough. It seems rather 50% mark down is needed. What goes up must come down.

max_leering's picture

City of London real estate office price per sq. ft. is USD 225.00 to 277.00... and going down as I type

fishpoem's picture

No problem. They can just move to Detroit, where office space is $18/sf. A classic Win:Win Fairy Tale ending.

OverTheHedge's picture

So now the Chinese will pull their money en-mass,as they do when a market drops, and there should be a few bargains in central London. Not sure what the Russian oligarchs will do - start shooting estate agents? We can only hope

ThrownOffZHTwice's picture
ThrownOffZHTwice (not verified) Jul 4, 2016 3:18 PM

"Sept 17 2008:

The announcement was made by the Primary Fund, which had almost $65 billion in assets at the end of May. It is part of the Reserve Fund, a group whose founder helped invent the money market fund more than 30 years ago.

The fund said that because the value of some investments had fallen, customers now have only 97 cents for each dollar they had invested.

This is only the second time in history that a money market fund has “broken the buck” – that is, reported a share’s value was less than a dollar."

Okay, so now a UK fund has halted redemptions, July 4, 2016.  Looks like the carnage may be about to begin.

Thautikus's picture

Once again proving without a doubt that all capital markets are rigged and controlled.

 

"the risk is this creates a vicious circle, and prompts more investors to dump property."

 

Ah yes, we can't have a free market, it must be gated, controlled, stopped, refused and denied access. The risk is... what is the point anymore. Just come clean and admit that the entire world, every market and every asset class is part of an ongoing ponzi scheme and as an individual investor you have zero rights to your 'property'.

 

Exactly who gives anyone the right to deny me as an individual access to and control over my property. If someone else can deny me that right then there are no markets and no freedom.

 

“The hardest thing to explain is the glaringly evident which everybody has decided not to see.” 
Ayn RandThe Fountainhead

JohnGaltUk's picture

Lets hope they never burn her books

Uchtdorf's picture

You wrote: "Exactly who gives anyone the right to deny me as an individual access to and control over my property."

 

I think it is the account owner who, failing to read and/or understand the fine print, and fully engaged in recency/normalcy bias, gives the fund managers to right to deny said account owner the right to access/control of said property. Do not pass Go. Do not collect $200.

haruspicio's picture

Ugh Ayn Rand and the bible of avarice and selfishness. Yuck

Bopper09's picture

But Bear Stearns didn't have a giant number of hard working gents from Pakistan, Syria, Turkey and North Africa fresh off the boat waiting to pay premium prices on housing.  So it's hard to compare. 

Spungo's picture

I hate to bring up Cramer, but Cramer perfectly described this process in one of his books. He ran a successful hedge fund because the gates were always closed. No new money to fuck up the flow of things, no money flowing out to cause forced liquidation. I don't even know how I would run an open-ended fund. It would suck ass. I would need to keep tons of cash ready for redemptions instead of just telling the investors to go fuck themselves and sell the shares in the open market. Regular companies don't need to deal with this. If you ask Exxon to redeem your shares for cash, they'll tell you where to go.

Closed-end funds are the way to go. You can often find them trading at a discount to NAV as well, which is awesome. It's like buying a discounted mutual fund.

jcaz's picture

As someone who has run a couple or three, I can tell you it's actually a lot easier-  inflows tend to negate the effects of outflows, especially when you get decent scale.

It's only when you try to artificially limit one end or the other do you run into flow problems-  funny how that free market shit fixes all sorts of things....

Phillyguy's picture

Maybe the BOE will start buying up property in London from Standard Life and similar firms.