By Sinead Cruise
LONDON, Dec 11 (Reuters) - More redemptions, fund closures and forced sales could beckon in 2009 for UK open-ended property fund managers, a year after an investor exodus sparked suspensions which they had hoped were temporary.
Britain's property market cooled rapidly just before Christmas 2007, triggering a deluge of exit requests and forcing many funds to bar outflows until they could offload discounted assets in an increasingly cautious market.
The restrictions were billed as temporary measures to protect more stoical investors but as the one-year anniversary of the first shutdown passes, several funds remain closed, some stakeholders are still waiting for their money and many more could find their cash frozen as other funds battle to stay open.
"This year has been very difficult," said Richard Jones, managing director of UK property at Aviva.
"Will see more closures? I don't know. Generally, today's redemptions are hugely less than this time last year. But it's also fair to say a lot of the cash that fund managers set aside to meet new redemptions has gone," he said.
Aviva was forced to close its Morley Pooled Pensions Property Fund (now called Aviva Investors Pensions Property Fund) a year ago after of flurry of exit requests.
Despite a crop of asset sales at healthy prices relative to book value, Jones said managers were not rushing to re-open the 834 million pounds ($1.25 billion) fund amid fears of a second wave of exits.
"The trustees were concerned the fund didn't close, re-open and then close again. We know who is in the queue and needs are being met but we are looking to build a cash buffer before the fund re-opens properly," said Jones, adding that he expected most managers of closed funds to adopt similar positions.
Such staggered re-openings could prove prudent as data from Lipper FMI shows investors are thinking twice about funds they see as at risk of sudden closure or plunging net asset value.
According to Lipper, the total estimated net inflows to European property funds nosedived from 13.7 billion euros in 2002 to 1.3 billion euros between Jan. 31 and Sept. 30 2008.
FIRESALE FEARS
Last month, Aviva and New Star Asset Management were forced to close their respective European Property Fund and International Property Fund, citing similar liquidity pressures.
These latest closures have reignited fears the New Year could herald a fresh wave of forced sales like those seen in December 2007, when average prices fell by a then record 4.2 percent in one month, according to Investment Property Databank.
Forecasts from the Investment Property Forum suggest UK property prices could fall by a further 11.5 percent in 2009, on top of a minus 21.8 percent fall to end-2008 but some experts say this decline could deepen if more funds are forced to slash values in order to raise cash quickly.
"It is important that investments in real estate funds should not be seen as trading vehicles," said Timo Tschammler, MD of International Investment at consultant DTZ.
"Whilst, the 'hot' money from institutional investors is clearly welcome, it is essential this is blended with retail investment to avoid a scenario of mass redemptions," he said.
RREEF, the alternatives investment arm of Deutsche Bank, was also forced to suspended its flagship UK Core Property Fund in November 2007 after a rise in redemptions.
After consulting investors, the fund moved in May from a suspension regime to a postponement regime, which meant RREEF could pay out investors one-by-one when funds were available, with a maximum delay of 15 months.
Pierre Cherki, European head of RREEF, said that while all 2007 redemption requests had been satisfied, new applications to leave the fund were still being submitted.
"We looked at our portfolio early on to try to identify properties we felt might not perform as well in current market conditions...that process has helped us repay 2007 redemptions in good time," Cherki said.
"But we have had new redemptions and we are still in the postponement regime but for the next 6-9 months, we don't have any payments due," he said, explaining why the fund was not vulnerable to firesales.
Cherki denied the sustained fund closures and continued redemptions had damaged the reputation of the asset class. But he said managers needed to protect supportive stakeholders from a rise in tactical redemptions, where many large investors aim to keep in the queue for payouts often withdrawing their request just before payment.
"It is important investors consider these decisions carefully. Those in the queue are likely to be paid sometime in the second half of 2009, when the market could be at the bottom," Cherki said.
(For a factbox on Britain's biggest unlisted property funds click on (additional reporting by Daryl Loo; editing by Elaine Hardcastle)
(See www.reutersrealestate.com for the global service for real estate professionals from Reuters)