Real estate fund outflows accelerate in November
Outflows from real estate funds accelerated in November, suffering their third worst month this year so far, according to the latest Fund Flow Index from Calastone.
A total of GBP251 million left the sector, up from GBP208 million in October and GBP179 million in September, and marking a record 14th consecutive month of outflows. Since October 2018, outflows from real estate funds have totalled an unprecedented GBP2.5 billion. At 28.1, the Calastone FFI:Real Estate registered its fourth worst month on record in November (a reading of 50 means inflows equal outflows), and has performed worse than any other asset class all year in 2019.
Edward Glyn, Head of Global Markets at Calastone, says: “Real-estate funds keep breaking new records for all the wrong reasons as capital continues to leave the open-ended sector. Two-fifths of the UK’s commercial property is in retail, a sector suffering relentless disruption at a time when economic weakness has depressed sentiment around parts of the commercial property asset class.
“Outflows are the inevitable result. Worse still, real-estate funds are now caught between a rock and a hard place. To cope with consistent outflows, they must hold very high cash balances, of as much as 30% in some cases. Paradoxically high cash weightings may themselves be causing further outflows as investors shun the notion of paying management fees on holdings that are not fully invested in their chosen asset class.
“Property is inherently relatively illiquid, so regulatory change enabling open-ended property funds more flexibility around managing outflows may help, but the timing is bad, as the furore around the collapse of Woodford Investment Management following the suspension of the firm’s main equity funds makes it more difficult to highlight that investor interests are often best served by temporary suspension of trading. In the meantime, investors are voting with their feet.”