28 Aug 2020

Property funds have once again been in the spotlight during the coronavirus pandemic, with the uncertainty over valuations triggering some fund suspensions in the commercial property sector.  

While suspension is not ideal, the measures designed to protect savers kicked in as they were supposed to. However, it is important that we look ahead to the ways in which the property fund sector can continue to serve its customers in the future.

Fundamentally, the Association of Real Estate Funds and its members believe that savers should be able to benefit from the diversification and income that comes with direct exposure to property market return. 

Accessing an illiquid asset such as property through a fund inevitably leads to the challenge of balancing customer expectations around the ability to sell their fund holdings with the reality that property takes longer to sell than stocks and bonds.

The Financial Conduct Authority (FCA) consultation on addressing the potential liquidity mismatch in open-ended property funds presents an opportunity for a discussion between the industry and regulator. The use of a notice period may bring benefits to savers and investors.  


First, returns could be significantly boosted since funds may be inclined to significantly reduce their cash buffers, which could reduce the long term cash drag on both income and capital returns.

By maintaining a smaller cash buffer, funds may be able to increase their overall exposure to direct real estate, enabling greater diversification and correlation with the underlying asset class.

Second, the proposals may also significantly reduce the risks of fund suspensions due to liquidity issues and afford the manager time to complete transactions, ensuring that the best value is obtained for the underlying investors.

Property funds, however, fit into a wider ecosystem, comprised of platforms, distributors, wealth managers and financial advisers. Any regulatory change therefore is likely to have knock-on effects and challenges elsewhere in the chain.

The new FCA proposals will require coordination and open dialogue across the property fund ecosystem in order to find suitable solutions.

In particular, the proposals will mean that changes are necessary for some platforms so that they can support the proposals. The proposed notice period, which could be as short as 90 days, will mean that the process for portfolio rebalancing, whether undertaken by wealth managers, other asset allocators or directly by customers, will need to be actively resolved with the platforms.

Investment in bricks and mortar has long been recommended by financial advisers to their clients looking to provide for their retirement and meet their long-term financial goals. We are pleased that the FCA is working with both HM Revenue & Customs and the Treasury on amending the rules on ISAs and Sipps to preserve tax efficiencies.

Any regulatory changes should not dissuade wealth managers from continuing to advise their clients to invest in property funds, which can offer savers a steady income return, diversification and low volatility.

By working alongside the FCA and listening to investors, Association of Real Estate Funds is committed to looking at the ways in which we can continue to provide long-term investment opportunities.

The proposals may open up a more stable route to investing into long-term illiquid asset classes such as property and infrastructure, and enable all investors to enjoy the benefits these types of assets offer.



Paul Richards

Paul Richards

Managing Director, AREF

Paul is the Managing Director of AREF.

Before joining AREF, Paul was Head of the European Real Estate Boutique within Mercer’s investment consulting business for almost 10 years, previously he was Head of Indirect Real Estate Investment and Global Managed Accounts at LaSalle Investment Management, where he was responsible for managing global portfolios of unlisted real estate funds for clients from Europe and Asia Pacific.

He has over 25 years of real estate experience in investment, corporate finance and research, and has advised investors, occupiers and venture capital companies on property portfolio strategy and on financial structuring, including PFI, senior and mezzanine debt and joint venture arrangements. His employers have included LaSalle Investment Management, Cushman & Wakefield and Henderson Investors.

Before coming into the world of real estate, Paul worked in marketing and market research. He originally studied Physiological Sciences at Lincoln College, Oxford and has a Master of Science in Real Estate from City University Business School, London, now Cass Business School.