Aberdeen confirmed it will make a ‘dilution adjustment’ – a change to the share price of a single priced open-ended fund – by reducing the dealing price of its UK Property Fund and UK Property Feeder Unit Trust by 17%.
It comes as the company temporarily suspended trading in the funds from midday on Wednesday, with trading scheduled to resume at midday on Thursday.
The asset manager said the levy was imposed “solely to reflect the need to dispose of properties quickly in order to provide liquidity”, although the firm is “mindful” the 17% drop in share value could deter investors from pulling their money.
“Reducing the share price of the fund reflects the changing market conditions over the past week or so and uncertainty around prices in the property market; sellers requiring liquidity are having to market properties at sometimes significant discounts to their recent valuations,” said Martin Gilbert, chief executive at Aberdeen Asset Management.
Dilution adjustments are usually applied by fund management companies to protect existing investors from bearing the costs of buying or selling the underlying investments as a result of large inflows into or outflows from a fund.
LGIM
Legal & General Investment Management also took steps to deal with the spike in redemption demands.
Rather than halting trading as its peers have done LGIM has also taken a different approach, making a 15% ‘fair value adjustment’ to L&G UK Property.
“At this time it is still difficult to predict the exact impact of the vote to leave and subsequent market events on commercial property values,” said a spokesperson. “In the interests of treating customers fairly, we have made a further fair value adjustment of -10%, so that the underlying property assets of the UK Property Fund and the UK Property Feeder Fund are now subject to a total fair value adjustment of -15%.”
“The new prices were applied from the valuation point on 6 July,” she continued. “The adjustment has been made considering the broader market response and other economic metrics. We will continue to monitor market events closely, using all available sources and our experience of the property market.”
The L&G UK Property Fund invests in over 100 UK commercial properties across retail, industrial and office sectors. The fund, was £2.3bn in size as at 30th June 2016, with no borrowings.
