Domino #2: UK's Aviva Property Fund "Frozen" Due To "Lack Of Immediate Liquidity"

Tyler Durden's picture

In a stark flashback to the catalytic event that ultimately brought down Bear Stearns in 2008, and subsequently unleashed the greatest financial crisis in history, last night we reported that 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 we further noted, citing an analyst, “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.”

As we concluded, whie Brexit is not a Humpty Dumpty event, where all the Fed’s horses and all the Fed’s men can’t glue the eggshell back together, it is an event that forces investors to wake up and prepare their portfolios for the very real systemic risks ahead. And, indeed, if Standard Life was the first domino, moments ago the second domino also tumbled when as Bloomberg reported that Aviva Investors Property Trust is as of this moment "frozen" citing "extraordinary" market conditions.

As the FT adds, Aviva Investments said it had prevented retail investors from selling out of its £1.8bn UK Property Trust since Monday afternoon.

What is notable is that the drop in the fund is not even that bad: as such it merely shows what happens when everyone decides to pull their money out at once from a financial system built on ponzi assumptions, and how one should always panic first.

Cited by Bloomberg, Aviva said in an email that "market circumstances, which are impacting the wider industry, have resulted in a lack of immediate liquidity" adding that "we have acted to safeguard the interests of all our investors by suspending dealing in the fund with immediate effect.... Suspension of dealing will give Aviva Investors greater control in managing cash flows and conducting orderly asset sales in order to meet our obligations to investors.”

As Laith Khalaf, a senior analyst at Hargreaves Lansdown cited above, put it, “the dominoes are starting to fall in the U.K. commercial property market, as yet another fund locks its doors on the back of outflows precipitated by the Brexit vote. It’s probably only a matter of time before we see other funds follow suit."

We could not have said it better ourselves.

“Standard Life’s decision to close its fund to redemptions concerns us. There is clearly fear that prices tomorrow will be substantially lower than prices today,” said Robert Duncan, analyst at Numis Securities. “Clearly the pace of redemptions has taken the fund by surprise.”

The announcements by both Standard Life and Aviva quickly impacted other commercial property funds: Legal & General dropped 5.6 % by midday, Aberdeen Asset Management shares were down 6.1% and Standard Life lost 3.5%. Land Securities, the UK’s largest property company, dropped 4.3%.

For now, Legal & General, which runs a £2.5bn property fund open to retail investors, said it had no plans to gate redemptions. “The fund retains over 20% of its net asset value in liquid assets, the majority of which is held in cash,” it said.  Henderson, another asset manager, said it had not made a decision on whether to gate redemptions from its £4bn property fund but was “monitoring the situation closely”. M&G Investments, which operates a £4.6bn property fund, said it had not so far suspended redemptions.

More from the FT:

Funds considered most vulnerable are those that are open to retail investors — who can demand their money back at short notice — and held lower levels of liquid holdings, such as cash or real estate shares, over the referendum period. Standard Life’s fund held 13 per cent at the end of May.


Open-ended property funds own about 5 per cent of the UK commercial property market, up from 2 per cent in 2007 ahead of the financial crisis, Mr Prew said, potentially increasing their impact on the broader market. Unlike closed-ended funds, which have a defined size, open-ended funds can issue an almost unlimited number of shares and grow or shrink as investors commit funds or withdraw them.


In another sign of stress, listed real estate investment trusts are trading at an average discount of 32 per cent to the net value of their assets, according to Jefferies.

Consider this a rerun of the open-ended US bond fund scare from late 2015, which saw numerous bond funds gating as well as the liquidation of several prominent names. It remains to be seen how extensive the fallout in the UK will be now that the first two dominos have toppled, forcing those who need immediate liquidity to approach those funds who stil have not gated.

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Squid Viscous's picture

Run to your bank, bitchez!

SoilMyselfRotten's picture

Gotta contain those panic firsters

VinceFostersGhost's picture



"Lack Of Immediate Liquidity"


Dead broke.....

MillionDollarBonus_'s picture

The UK economy is in free fall! Normally I'd say that property is a guaranteed investment, as I think it is elsewhere, but even that's no longer true in Britain. I told you what would happen if Britain left the EU. Every economic expert, including President Barrack Obama himself predicted that it would be a disaster, and now look - they were right! Let this be a lesson to other European countries thinking of going down this route. It may sound like a great idea to 'take back your sovereignty' and 'make your own trade deals', but when you weight up the economic consequences, it's simply not worth it.


BullyDog's picture

Nah,, you're ok.. When the elite have nobody to drive them around, cook their meals, carry their goods, harvest their foods.   What are they going to do, eat stocks and shares.  


I'd like to see the squids fend for themselves for a single month.  Boy are they in for a shock.


Money is an illusion, the only currency that matters is our time.   Spend it wisely.   


If you know how to plant, nuture, grow and harvest a single food crop you are better placed than 99% of the world.


Food could easily be the next currency, at least if it's not,, you won't have to worry about starvation.  



bamawatson's picture

OT, but pertains to recent zh story about trump's minimal ad spending and cuntlary's extensive ad spending

xavi1951's picture


Did you just refer to Barrack as an economic expert?

" Every economic expert, including President Barrack Obama himself predicted that it would be a disaster,...."  Now I know you are just being sarcastic.

MillionDollarBonus_'s picture

You don't believe that the President of the United States of America is an economic expert? I feel sorry for you.

yrad's picture

Ya, just like he is a constitutional scholar.

Why are liberals always feeling sorry for everyone? It's like a disease you have!

Huh Reeeally's picture

Freedom and self-determination are always worth it.

Nice trolling though!

RozKo's picture

Didn't matter if they stayed or left, everything was going to unwind anyway?


greenskeeper carl's picture

That's a fact. This was inevitable. It's also likely to spread. Anyone who has money in another of these property funds is going to see this and try to cash out, too. They'd be crazy not to. As has been said here many times, he who panicks first panicks best.

NeedleDickTheBugFucker's picture

Every economic expert, including President Barrack Obama himself predicted that it would be a disaster, and now look - they were right!

Obama = "economic expert"?  I thought the POTUS was an "expert" when it came to constitutional law or killing brown people overseas.

silverer's picture

"It's time for the elites to take matters into their own hands."


But they already have, for the last 40 years, and look at the mess they made of it.  That's like handing your six year old kid a gallon of paint and telling him/her to paint the walls they just crayoned over. 

fajensen's picture

The UK economy has been cirkiing the drain for the last decade, Brexit just moved it along a little bit. The real damage is done by people realising that "Hey ... property is going up five times faster than the wages used to buy property with, and the jobs are tanking too. Maybe I shouldn't be long this crap". 

DetectiveStern's picture

My preferred analogy to people not versed in finance.

Imagine a room filled with petrol and someone throws a match on it. Brexit is the match but the real problem is the petrol that was awaiting ignition.

Food Loaf Junkie's picture

Commercial property all over the developed world has been in a bubble.  Britain's,(specificaly London's) values have been a result of hot money fleeing other european, (see PIIGS) countries.  Now that hot money is fleeing elswhere.  Everyday people who actually hold and live in the property they own will ride this out to a more realistic valuation.  I know this won't change your opinion, but it is the reality of the situation.

Antifaschistische's picture

when you think about it....investors having immediate liquidity options in a "property investment" company has a degree of absurdity to it anyway.  Not because it 'smells like a ponzi' but only because of the mismatch between "liquidity" and long term real estate investments.

greenskeeper carl's picture

Not necessarily. It can be liquid as long as there are others wanting to buy in, no actual property has to be sold when other investors want their money back. The problem pops up when you have no new investors wanting to buy, then you get this present situation.

Rylie's picture

Is what you just typed not the exact definition of a ponzy scheme?

techpriest's picture

Similar but not the same.

A Ponzi has no actual value - the value is new investors paying off the old.

In this situation the value is in the property, BUT if enough people want their money back quickly, they can't get it because you can't sell property at full value quickly.

For example, if your house is "worth $200,000," you may get $200,000 for it if you take a couple of months putting it out on the market, getting a few bids, etc. However, if it absolutely must be sold TODAY, because you borrowed money from someone and they want their money back TODAY, you are not getting $200,000 for it. You might not even get $20,000. That's the position these funds are in.

new game's picture

what drives real estate short term is interest rates. well, at zero or negative prime rates the "i bought a payment and got some real estate" meme is long on thin air...

sampaine's picture

You just explained why a real estate fund should never offer unlimited redemptions. 

techpriest's picture

+1 . It's also why you should read the prospectus reeeeeaalllyy carefully and understand the risks. You never want to risk being the last to panic.

Antifaschistische's picture

completely agree...but we live in this world where immediately liquidity has always been assumed.  Buy a thirty-year treasury and the assumption is that you have instantaneous liquidity.  Instant liquidity, on a 30 year instrument.  Okay, it works...usually.  Maybe one day we will be more rational when we can't assume trillions of dollars are on the sideline just waiting for everyone play their 'sell' card.   

...and when I outbid someone for real estate, I realize I outbid 7 billion other people on the planet and I do not assume that when I go to sell it, one of those who I already outbid is just waiting for me to relist and give me my money back.


moneybots's picture

"It may sound like a great idea to 'take back your sovereignty' and 'make your own trade deals', but when you weight up the economic consequences, it's simply not worth it."


1+1 ALWAYS =2.


The economic consequences of the EU were already baked into the cake. It is not worth it to remain in the EU, as the Greeks have found out and are still suffering for, as their government refuses to leave.

The EU is sinking and the British are wise not to go down with it.

magicdragon's picture

Property has *never* been a "guaranteed" investment. Look at Detroit. Look at many places hit by natural disasters.  Nothing in life is "guaranteed" except eventual death.  (I know the saying is "death and taxes", but govts can collapse and that could change the tax situation).

... and most "economic experts" quite honestly aren't.

It was pretty much a given that the UK would feel short term pain - everyone is going to latch onto every negative event and say "see! see! it's not worth it! it was a mistake!" - it'll take years for the *true* economic consequences to work themselves out, and it might be good or bad in the long run.  Short term, yes, it'll be painful.

new game's picture

smart money-lol, tries its' best to find tangible value either cash flow wise or a place to serf. but that too ezhausts itself. real estate will be on this rollar coaster until the serfs take back their money system to something sound. til then buy, hold and survive with blinders on...

it is a race with no winners...

FringeImaginigs's picture

MDB, let's just thinking about things for a minute or a second. A few investors in real-estate funds can't get their investment back in cash immediately because, -surprise surprise - real-estate isn't as liquid as say cash or governement bonds. Hm. Now what? They have to wait for a while. And the result is?  They have to wait for a while. Or change their mind next week and reverse their redemption request. Hm. Now what? Either they continue with their lives or they jump into the Thames with rocks in their pockets. Now what? The UK goes on.

ShorTed's picture

Every economic expert, including President Barrack Obama himself...priceless stuff MDB, thx for that.

Winston Churchill's picture

Borrow short and lend long.
Commercial RE should have been in the internal life fund.
Just wait until the investors find out the assets
have been re-hypothecated 40 times.
Surely those stiff prison sentences last time were a deterrent.
Oh wait....

jcaz's picture

That ain't nothing compared to what happens when the people who think they "own" gold via paper figure out that they've been rehypothicated by 100 times that factor.....

Winston Churchill's picture

10 X 40.
But at this point,what difference does it make ?
I have a sneaking suspicion that most ETF's have zero underlying assets.
Just nobody fart or the DOW gets it.

eclectic syncretist's picture

What if the entire global financial system is just a shell game without a pea?

Winston Churchill's picture

You take a red pill for the holidays ?
Thats exactly what it is.They just keep using bigger shells.

Nobody For President's picture

And the biggest shell of all is a nuke.

Blankone's picture

Yes, and just as those street games are preplanned and rigged by the "house" so is this big game.

Something about how they are trapping "investors" and not allowing them to cut their losses and leave makes me relate it to some fool being forced to continue to play on the street, not allowed to leave by a big goon, untill all the money in his billfold is gone.

BorisTheBlade's picture

Don't know, merely judging by the balance sheet, they don't have that much liabilities. Almost 2 bln in assets and 26.5 mil owed to creditors save for distributions, which certainly jumped after Brexit. I think it's more of a case that with distributions skyrocketing and cash depletion they'll need to look at property divestment to cover those. This quarter will be a nightmare to value portfolio and try and dispose of the properties as everyone will be doing the same.

Winston Churchill's picture

Depends of how the share capital is valued.NPV or
historic.Its now a current liability vs a long term one.
Probably insolvent on either basis on the acid test.

BorisTheBlade's picture

On the basis of NAV i.e. Property portfolio value minus obligations appraised quarterly. I get there will be liquidity problems, since redemptions have eaten through cash and to cover further they'll have to dispose on a nosediving market properties which are in GBP 80-100 million bracket. Though it won't be like Bear Stearns where the value of underlying assets (CDOs) went to virtually zero, little relief to unitholders, they'll lose as property prices are going down, but fireselling illiquid portfolio won't help either. Sucks to be in property in a falling market regardless, but vehicle itself is relatively conservative, I doubt anyone should dump moneys into RE unless fully aware. Their prospectus btw lay this out including right to suspend redemptions:

silverer's picture

Hey!  Wait a minute! Who's money is that anyway?!'s GONE!

junction's picture

House of Cards or Domino Effect, take your pick.

Doom Porn Star's picture

"listed real estate investment trusts are trading at an average discount of 32 per cent to the net value of their assets,"


Which would imply that even at the present value post defacto 'Brexit devaluation' purchasing power the real estate is generally over valued by some 32%...or conversly imply that a 32% further devaluation in Sterling is appropriate to match collateral/real estate valuations to currency.

One way or another there is indication of an enormous valuation mis-match between valuation of the REITS and the Currency that is unlikely to be supported simply by further credit emission.

I am a Man I am Forty's picture

If your investment is illiquid real estate and you have a bunch of folks wanting to cash out it takes next to nothing to freeze the fund.  This is pretty meaningless in my opinion.  If you are charged with investing in real estate you need to sell real estate to get cash.  This doesn't happen in a day.  I mean London real estate needs to come back down to earth a little bit, make that a lot.

This is not a big deal, unless you were dumb enough to invest in illiquid assets and expect to get cash immediately.  That makes you a shitty investor.




Mr.Sono's picture

It's Putins fault, Traump is not there yet.