Pension funds have been told that they will have to wait indefinitely if they want to pull their money out of BlackRock’s UK property fund.
Those investors who asked for their money back at the end of September should have received it last week. However, BlackRock, the world’s largest money manager, has written to them explaining that it is deferring those redemptions for the time being.
Investors who were expecting their money to be returned in September were told the same thing last year and they are also still waiting.
BlackRock declined to comment. It is understood to be keeping its deferral measures under constant review.
The BlackRock UK property fund is only open to sophisticated investors, typically pension funds. It invests mostly in offices, warehouses and shopping centres, the valuations of which have started to come under pressure in recent months.
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Other funds have also seen an increase in the number of investors looking to pull their money of late. They too have responded by limiting or deferring redemption requests.
Portfolio managers have blamed the increased redemptions on the gloomy economic outlook and rising interest rates and bond yields. Yields jumped in the immediate aftermath of the mini-budget in September and, although they have since settled, remain much higher than they were six months ago.
Higher returns on government bonds, seen as one of the “safest” asset classes, have reduced the need for pension funds to hunt for yield in other sectors, including property.
To make up for the improved returns on offer elsewhere, property yields have had to widen, denting capital values. Goldman Sachs predicts that, come the end of 2024, commercial property prices in the UK will be as much as 20 per cent below where they were last summer.
At the same time, higher rates and yields have increased the cost of financing which has prompted dealmaking in the commercial property market to all but dry up. That has made it trickier for managers who need to sell assets in order to pay out their wantaway investors.
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Fund managers have also bemoaned the “denominator effect”, whereby investors with strict mandates on how much of their portfolio can be allocated to property, have had to sell some of their real estate holdings to balance out the steep falls in some of their stocks and bonds investments last year.
