Ouch. Remember the idea that property funds were a great route to get exposure to the sector without the aggro of buying directly and with better liquidity.

Well, turns out that it was not so great for several reasons
- you can only sell units back to the manager at the price they set, rather than offering your property to anyone
- the manager can change the settlement period or willingness to trade

Hence, Schroders has just applied a sellers discount of 12.5% on the net asset value as it assumes the market will worsen (you'd have thought they should mark down the NAV if the valuation are so wrong, but then fees get calculated off the NAV & buyers don't get the discount I'm told).

Likewise M&G is imposing a lockup on institutional investors until the fund can sell assets.

A market in property derivatives that wasn't reliant on physical assets would be a safer exposure route (credit issues aside). Hence, open a spreadbet on property indices. There are many natural users of such a market from funds to property owners to outright speculators. Such markets are in their formative stages but not for long I'd bet.

posted by John Wilson @ 2:15 PM Permanent Link newsvine reddit



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