Aegon AM closes Property Income Fund amid Covid-19 challenges

Aegon Asset Management (AM) has announced the closure of its Property Income Fund and its Feeder Funds amid material uncertainty over valuations in the UK property market and concerns over liquidity levels.

The funds were initially suspended at the onset of the pandemic in March 2020, with Aegon AM working to raise liquidity to meet anticipated investor redemption demands in the interim, in line with the hope that the suspension would be lifted in Q2 2021.

However, the group confirmed that it has proved “increasingly challenging to raise sufficient liquidity whilst also ensuring that continuing investors have a representative and well-balanced portfolio".

As such, it has announced plans to close the funds, with the proceeds to be returned to investors as quickly as possible.

Aegon AM will continue to raise liquidity and pursue the sale of all properties owned by the Aegon Property Income Fund, and has confirmed its intent to make a series of payments throughout the closure period as sales are completed.

More broadly, the group warned that property investors, particularly those invested in daily dealt funds, have faced an extended period of stress over recent years, with the economic downturn and recent lockdowns further challenging the sector.

This has been echoed by industry experts, with AJ Bell head of active portfolios, Ryan Hughes, noting that the closure comes "hot on the heels of Aviva closing their property fund".

He stated: "Given the fund size had fallen to under £400m and would be expected to fall further upon any reopening, it was likely that the fund wouldn’t be viable in the long run and therefore it looks as if Aegon have made the sensible decision to wind up the fund.

“As ever, in this situation, it’s vital that Aegon communicate quickly and clearly with investors so they understand how the process is happening and most importantly, how long it’s likely to take.

“The challenge Aegon now has, like Aviva, is that the market knows they are a forced seller and this may make it difficult to sell down the underlying properties at the right price.

"As we have seen with the Woodford fund closure, getting the balance right between time and price is extremely difficult and sensitive and therefore the clear communication of this is key.”

Quilter Cheviot property research analyst, Oli Creasey, also highlighted the news as unsurprising, suggesting that the fund "has been struggling for some time, with one year returns particularly disappointing".

“The broader UK property market returned around 6 per cent over the same period, while the average property fund returned -1.6 per cent, so significant underperformance will also have contributed to this decision," he continued.

“The silver lining for investors is that the closure accelerates the return of some cash with most of the 32 per cent cash weighting is available to pay out.

“For the property fund sector as a whole, this is likely to mark the last of the closures, for now. The larger property funds are at much less risk of permanent closure, while the only other fund of similar size is run by BMO, which has seen better performance and as a result expect investors to continue to reward it with patience.

“With regulatory changes pending and an uncertain outlook for commercial real estate, however, times are only going to get tougher for property funds.”

Meanwhile, research from Aegon has suggested that there is an increased demand for environmental, social governance (ESG) funds, with 41 per cent of advisers reporting an increase in queries about ESG investments.

Despite the increased appetite, 84 per cent of advisers also highlighted barriers to integrating ESG into their investment proposition, with 98 per cent of advisers suggesting that there was a need for further education and improved awareness.

Furthermore, 28 per cent of advisers said that their clients did not realise there were different approaches to ESG.

This is perhaps unsurprising given that 38 per cent of advisers said they themselves found ESG research confusing, while 24 per cent said they found a lack of information available on ESG.

Lack of product choice was also a key barrier, as 22 per cent of advisers said that the lack of ESG asset classes classes to build rounded portfolios made it difficult for them to fully embed ESG within their propositions.

Commenting on the findings, Aegon UK managing director of investment solutions, Tim Orton, said: “ESG is no longer an optional extra. There is a real opportunity to help advisers cut through the marketing messages so their clients can connect their savings with the ability to make an environmental or social impact.

“Our research shows that the industry is not moving fast enough in terms of clarity and consistency ─ which is a source of frustration for advisers and their clients.

“The government’s green finance agenda puts UK financial services at the forefront of this opportunity and as an industry we need to increase transparency so clients and their advisers can make informed decisions about their investments.”

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