Domino #7: In Dramatic Twist, UK Property Fund Cuts Value Of Its Assets By 17%

Tyler Durden's picture

Instead of suspending trading and implicitly disallowing redemptions, giant fund manager Aberdeen, also known as Domino #7 if the UK ok commercial real estate collapse, has forced investors in its UK Property fund to take a 17% haircut wiping hundreds of millions of dollars off its value. The fund stated that shareholders wishing to redeem will do so at a reduced price in order to reflect the current market environment and the fact that short term trading in the property market has "relatively penal consequences."

Unlike similar asset freezes implemented by at least 6 other property funds in the past three days, Aberdeen has not only temporarily suspended trading in its £580m UK Property fund but has also slashed the price of the fund by 17%, and in doing so it has demonstrated just how massive the "liquidity mismatch" bid-ask gap is in times of stress.  Trading in the fund, and the Aberdeen UK Property Feeder Unit Trust, has been suspended until 7 July at midday in order to allow shareholders who have placed trades have the option to withdraw if they wish. Those who persist in demanding their money will get 83 cents for every dollar.

Until this latest intervention, over half of the the £25bn in UK property sector assets had already been gated and frozen; thanks to Aberdeen we now also know that the fair value of such CRE property assets is about 20% lower.

Investment Week has more:

Aberdeen company said the action has been taken due to rapidly changing commercial property market conditions and to continue to provide liquidity in the fund reflecting those conditions.


"Aberdeen's property fund continues to hold a good level of cash, which permits us to offer these options to investors, but it is imperative that we protect remaining holders by fairly reflecting the impact of short term trading on values provided to redeeming shareholders. The property market itself may take some time to find its level but we believe that the same factors that made property a good long-term investment yesterday remain true today."

And The Telegraph adds that Aberdeen's chief executive Martin Gilbert said:

"We have worked hard to deliver realistic options to clients: redeem at a price which reflects the relatively penal impact of short term trading in the property market, or remain in the fund, protected by the anti-dilutive measures we are taking, and look through to the longer term fair value which we expect to be available in less pressured markets."


He added: "Reducing the share price of the Fund reflects the changing market conditions over the past week or so and uncertainty around prices."


He also sounded the ominous warning that "sellers requiring liquidity are having to market properties at sometimes significant discounts to their recent valuations".

This will wipe out any gains in the fund...


Which makes us wonder - is all this post-Brexit selling because UK property prices are 20% over valued?

*  *  * 

This was Domino #7 and by far the biggest one yet...


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.


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 Bloomberg reports, M&G suspends trading in property portfolio, feeder funds, according to statement on website.


"Investor redemptions in the fund have risen markedly because of the high levels of uncertainty in the U.K. commercial property market since the outcome of the European Union referendum.


Redemptions have now reached a point where M&G believes it can best protect the interests of the funds’ shareholders by seeking a temporary suspension in trading."

Henderson temporarily suspends all trading in the Henderson U.K. Property PAIF and the Henderson UK Property PAIF feeder funds to safeguard the interests of all investors, according to statement.
Decision due to “exceptional liquidity pressures” after Brexit and recent suspension of other direct property funds


As The FT reports,


Columbia Threadneedle, the £323bn asset manager, has also confirmed it had suspended redemptions from its Threadneedle UK Property fund, blaming uncertainty in the UK property market following the referendum.
The company said in a statement:


We have not been immune to the recent trend of retail outflows from the sector and so far these requests have been met from the cash balance retained within the Threadneedle [fund].


However, it is expected that these requests to sell will continue for the time being due to uncertainty in the market following the UK referendum result, therefore the temporary suspension of dealings allows sufficient time for the orderly sale of assets, and protects the interests of all investors.


Canada Life said it suspended dealing in its £222 million property fund to "protect the interests of all investors in the property funds".


It added in an alert to financial advisers: "We did not take this decision lightly as we understand how this may affect you and your clients. We will endeavour to lift the deferral as soon as practically possible."


Canada Life said it would be deferring requests for withdrawals from its commercial property fund from 3pm on Tuesday, for up to six months.

Other firms are expected to follow suit as the investor exodus picks up.

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Maplehood's picture

"Penal selling" sounds bullish to me

JamesBond's picture

It's a bitch when you peel back the sheetrock and find the mold and asbestos 

Smerf's picture

Toss it in the trash and be done with it.

Save_America1st's picture

Central Banksters are punishing England for the Brexit right?  They're going to try and make life miserable in order to cause a violent uprising from those who wanted to stay in the EU maybe???

And if they can punish England bad enough then they hope it will discourage any other countries from exiting next.

petar's picture

Dont worry, there will be another round of global printing... Property values are not going down, GBP is going down

Bank_sters's picture

In .10 font on the consent form is the following statement.


16.9 percent of this penalty is  assessed to cover the CEO's legal fees, bribes, and other attempts to gain freedom and to secure ill gotten gains from you wankers.   .1 percent of the cost is a processing fee.


Today's mr. obvious award goes to....

This could be the beginning of a vicious cycle in commercial property, where the halting of withdrawals in one fund leads to higher withdrawals and further halting in other funds. As sentiment turns, funds could be forced into selling property assets at ever falling valuationsShaun Port, chief investment officer of Nutmeg

PT's picture

Ummmm, so, to investors, does this mean, ummmm, they can't live off the dividends, they can't live off the rents, they can't hold stuff off market, get it revalued and borrow against the higher valuations, they can't "extract value" from Capital Gains? 

Why now?  I'm so confused ...

Quant Jockey's picture

I think it sounds painful.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Impoverished Psychologist Jul 6, 2016 5:20 PM

China, pwetty pwease let your money flow again :(((

yellensNIRPles's picture

It's absolutely incredible to me that all of this is legal for them to do, but then going to a casino is perfectly legal as well, isn't it?

DetectiveStern's picture

As far as I can tell it's not legal. It's a ponzi scheme pure and simple the implimentation may be legal such as keeping to whatever liquiditiy requirements the regulations demand but the act of running a ponzi scheme is illegal.

SimpleJackBlack's picture
SimpleJackBlack (not verified) Jul 6, 2016 4:19 PM

You want out? Here is the tiny door to squeeze your fat ass out if. Thank you for your business.

Newbie lurker's picture

I fucking love dominoes!!!!!!

elegance's picture

lol. 20% overvalued...

Urban Redneck's picture

That 20% ignores proper valuation methodology. If they actually had a "strong cash position"... when doing the valuation the haircut is applied to the non-cash/non-liquid assets on the books. Alternatively/in other words, if one is arguing that Aberdeen UK Property Fund's shares are 20% overvalued, then either their toxic wanker real estate is way more than 20% overvalued, or they don't actually have any cash... and that's before the market reprices Aberdeen's BS...

spanish inquisition's picture

Yup, get out while you still can.


TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) elegance Jul 6, 2016 5:22 PM

Quick, suspend mark to market!!

Debugas's picture

i would still fix the loss and sell if they want a minor 17% discount

in a week they will freeze anyway

thecondor's picture

Was this a mark to market or just a haircut?

CJgipper's picture

This is a temporary selloff by the global elites to punish the UK for Brexit.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) CJgipper Jul 6, 2016 5:27 PM

Let's hope so because if not its that people have finally woken up to the real estate bubble and prices will collapse back to early 2000 levels which was much closer to a fair value (before governments started their "housing for all" bubble).  If its temporary punishing for Brexit that will be a bullish thing.

ThrownOffZHTwice's picture
ThrownOffZHTwice (not verified) Jul 6, 2016 4:27 PM

"Sure, you can have your money back, but we will have to take 17 percent of it in order to give it back to you.  Why 17 percent?  Oh, we think that is about right, we don't really have any numbers to justify it, of course."   Mutual funds suck.

SimpleJackBlack's picture
SimpleJackBlack (not verified) Jul 6, 2016 4:28 PM

Current investor sells at -17%. New investor pays par. That's quite a spread.

Smerf's picture

The Fund must be protected!

Doom Porn Star's picture

Those who sit tight make a big profit, right?


PT's picture

Yes, as long as they only want to take their profit when no-one else is taking their profit.

Squid Viscous's picture

Haircutz Bitchez!!

Better than getting your acct. "Nair" cutted?

buzzsaw99's picture

penile selling.

css1971's picture

No speculative bubble there... Right?

therover's picture

What a way to drum up 'liquidity'. 

Bet half those suckers bail figuring a 17% loss is a hell of a lot better than poof it's gone.

WillyGroper's picture

"relatively penile consequences."


this is bound to hit queenie right in the purse.  ;D

ThrownOffZHTwice's picture
ThrownOffZHTwice (not verified) Jul 6, 2016 4:43 PM

"Penal" is a stange word to use by a business.  It's as if the mutual fund was its own little fucking country making up its own little fucking laws.  Eat shit and die, Aberdeen.  Here is the definition of "penal":


pe·nal ?p?n(?)l/ adjective adjective: penal
  1. relating to, used for, or prescribing the punishment of offenders under the legal system.

    "the campaign for penal reform"

    synonyms: disciplinary, punitive, corrective, correctional

    "a penal institution"

    • (of an act or offense) punishable by law.

WillyGroper's picture

it's jumped the pond, just not telegraphed yet.

saw ads for mortgage liquidation specialists & loan counselors at 2 financial institutions today.

deerhunter's picture

Are black swans signets or goslings first. Do they come in gaggles as geese do. For years I have said that in nature rotten vegetation and death always float to the top eventually. Welcome to the world pond as the scum bubbles to the light .

Slave2Fashion's picture

A baby swan is a sygnet, and a flock is a wedge of swans. Are we sure that they are black swans? Seems to me that a murder of crows would be more appropriate.

Smerf's picture

"Penal consequences" otherwise known as a kick squarely between the legs.

Hungman's picture

This actually starts a new domino effct of haricuts instead of suspensions. Now would be a good time to start panicking...if you are into that type of thing. 

Avatar Of Failure's picture

Hey,Brexiters,how does it feel?

Hungman's picture

Not being a Brexiter I can't say for sure but I do know that when DB collapses the EU will feel a lot worse. 

JustUsChickensHere's picture

It feels great - freedom always has some costs associated with it.


I think you are looking at things from the wrong perspective. This sort of chaos represents a once in a lifetime opportunity. The entrenched cliques are getting pounded, and since I was never in 'the club' this should bring out lots of new chances to accumulate wealth.

Add to that, all this was telegraphed months ago as a possibility. If you did not hedge accordingly, you were not awake.

finametrics's picture

PPT about to go into overdrive. May send us to new highs. Just sayin...

raywolf's picture

this is what happens when you invest in shit that can't be sold on a mouse click...... some dusty old pile of bricks in London is worth only whatever some other clown will pay for it....

RSDallas's picture

This doesn't have anything to do with Brexit.  These idiots (and somewhat the US Commercial property owners) never wrote their asset prices down from 2008!  Mark to market was and still is only a mythological word!  Damn crooks!