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Friends Provident locks exit from £1.2bn property fund

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    Friends Provident locks exit from £1.2bn property fund

    Friends Provident locks exit from £1.2bn property fund
    Miles Costello

    The crisis in the commercial property investment market deepened last night as Friends Provident froze its £1.2billion flagship fund after a rush for the exit by investors over the past three weeks.

    Friends' move affects up to 118,000 individual investors in its 24-year-old property fund, which invests in offices and retail developments in areas as diverse as Glasgow, Leadenhall Street in the City and Camden Wharf in North London.

    Britain's fourth-largest insurer, already in the thick of a strategic review, suspended redemptions in the fund for up to the next six months. Previously investors would have had immediate access to their capital.

    Friends said that its move reflected a sharp downturn in commercial property values in the wake of the credit crunch. It said that if it had carried on letting investors pull their money, it might have been forced into a fire sale of property assets to part-finance withdrawals.

    A spokesman said of the rash of redemptions: “It started happening in the very late autumn.” He said that a cash buffer of about 14 per cent that the fund had operated in July had been reduced to about 5 per cent because of the demand to pull funds.

    The spokesman said: “This month we have had about £70million being paid out. This compares with £77million for the three months of September to November. What we've seen is a decline in confidence in the commercial property market.”

    Friends' move comes as the boom in commercial property investments is coming to a sharp end after years of record returns. According to some estimates, sale values across the UK sector have tumbled by as much 10 per cent in recent months.

    With commercial rents also facing a squeeze, investment returns have slumped. According to Investment Property Databank, the independent researcher, investment returns on commercial property fell by 3.4 per cent to minus 1.8 per cent for the year to date in November, the lowest level since records began.

    Analysts at Citigroup yesterday calculated that, on average, the value of FTSE100 property companies has halved this year. (AtW's perhaps this is the markets estimate that their assets, real estate, will drop by 50%?)

    Friends is just the latest firm to act to stop worried investors cashing in their holdings. It is thought to be the first to prevent customer withdrawals.

    New Star Asset Management, which operates a £1.7 billion property fund, last week marked down the value of its assets by 8.2 per cent. New Star has seen the fund's value fall by 17.8 per cent so far this year.

    Norwich Union, which operates the UK's biggest property fund, is known to have consulted the Financial Services Authority about measures it might take to prevent a rush of withdrawals from its £3.7 billion business.

    Invista Real East Investment Management, a UK property investor, last month said that sliding commercial values had cut the value of its assets under management by £600 million. It said that the outlook for the market was uncertain and predicted that prices will have fallen 10 per cent in the six months since the end of June.

    Friends said that it would honour all withdrawals up to midnight on Wednesday. It said the fund remained open to new investors and that if it could remove the bar before the end of the six-month period it would do so.

    The spokesman declined to confirm whether property in the fund had been put up for sale, but noted that other funds had suffered at the hands of the downturn. “Like others, we have got to plan ahead,” he said.

    Friends is being run on a day-to-day basis by Sir Adrian Montague, who became executive chairman after the departure of Philip Moore as chief executive, forced out after the collapse last month of an £8.4 billion agreed merger deal with Resolution, the closed life fund specialist. Sir Adrian is planning to update investors about Friends' strategic review by the end of next month. Friends shares closed 0.1p off at 154.9p.

    #2
    Doomed I tell's yer, Doomed!!!
    Confusion is a natural state of being

    Comment


      #3
      Okay, I'll take some advice from someone with a Masters in finance. Would it be a good idea to sell ones house/flat next year (perhaps at a 'selling price' and perhaps very early next year), or is it already too late to bale out? How do you see the economy going AtW?

      Comment


        #4
        Well, I don't want to give advice what you need to do, but I can say that if I owned house in the UK right now I'd try to sell it and pocket the profit. Next year is going to be tough, could be next 2-3 years or even more.

        As usual those with cash will be able to handle crysis better and there will be opportunities for them to invest well, but it could, and early indications seem to suggest, that the Govt and BoE will go for inflation option rather than recession, so those with cash might find it being devalued for the sake of devaluing debt of those people who overstretched themselves.

        Comment


          #5
          Yes

          I have sold up and banked as I said a while ago.

          Really depends on your circumstances

          I look at it like this

          I live in central london. The prices of flats are falling. I sold mine in June which was as high as it was going to go(Admittedly I only say that with hindsight)

          In my circumstances it was cheaper to rent in the area than to buy again and the prospect of capital gain was scant. Also there is a downward trend with rents at the moment as well for some reason (This is a mere observation more than research and applies to my local area(E2 sh1thole))

          I also considered my primary residence an investment rather than a home so I made the decision according to that factor as well.

          However there are problems with this as well.

          So my main asset now is sterling. I anticipated that interest rates would go up, but with drops in house prices and possibly the slashing of prices for consumer goods to increase sales, this shower of sputum we call our government will reduce interest rates further.

          I am not economically literate enough to give a sound opinion on whether that is a good thing but in my position higher interest rates would directly benefit me.

          The other trend I need to consider is devaluation of sterling. I predict it will devalue against other major currencies so if I have a stash of pounds it could devalue in a global sense

          So I dont know

          Merry Xmas
          There are no evil thoughts except one: the refusal to think

          Comment


            #6
            I've just bought a house. I think I'll be OK because I got 10% off the asking price and it's a 4 bed in the M4 corridor. It's also a home, not an investment so I'm not that bothered about the short term.

            Plus of course, I'm a contractor so my mortgage will be well reduced in a few years time...

            Older and ...well, just older!!

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              #7
              My BTL is on the market now - I was realistically hoping for 325 but will let it go for 305-310 just to get shot of it. I'm then planning on putting all the money in the € or $ for the next 12 months or so. Not decided yet.
              ...my quagmire of greed....my cesspit of laziness and unfairness....all I am doing is sticking two fingers up at nurses, doctors and other hard working employed professionals...

              Comment


                #8
                The crash is here.

                A few months ago everyone was desparate to get on the property ladder whilst they still could, now they are clambering to sell whilst they can still make a profit.

                Good luck.

                Comment


                  #9
                  Originally posted by AtW View Post
                  Next year is going to be tough, could be next 2-3 years or even more.
                  Once it goes into reverse ( it already has ! ) then I think it'll have some of the same momentum going down as it had going up and it'll be tough to stop. I reckon five years minumum to work off the current excesses !?

                  Comment


                    #10
                    £ is begining to tank now too...

                    Comment

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