Abrdn is planning to restructure its open-ended UK real estate fund, pivoting it towards a hybrid model with a larger focus on investment in global indirect real estate as it looks to improve liquidity for investors and provide certainty over daily dealing.
The Abrdn UK Real Estate Fund has £768.8 million in assets under management and is the second largest open-ended UK property fund. It invests in direct real estate with notable assets including 24-26 Minories, Leamington Shopping Park in Leamington Spa, and Solar Park in Birmingham.
At an extraordinary general meeting on 18 September, shareholders will be called on to vote on a proposal to transition the fund to a hybrid strategy.
If approved, the fund would allocate 45% of its assets to direct UK real estate, 45% to a global portfolio of indirect real estate investments – such as REITs, exchange-traded funds, and listed property companies – and 10% to money market instruments, including cash.
The move follows L&G's decision in April to similarly restructure the investment strategy of its £1.2 billion L&G UK Property fund. Most of the £1.2 billion fund has been invested directly in UK property but L&G is moving almost half the portfolio into global real estate investment trusts. The new hybrid strategy is intended to enable the fund to continue offering daily liquidity to investors.
L&G's new strategic asset allocation is 45% UK direct property exposure, 45% global REITs and 10% cash.
The moves by Abrdn and L&G fit into a broader story of UK property funds having been beset for some years by concerns over their structural exposure to the "liquidity mismatch" between the speed at which investors may want to take out money, and the ability to sell the underlying asset class, as well as generally less positive sentiment towards real estate in a higher interest rate environment.
They have only seen one month of net inflows in the last five and a half years although outflows from UK property funds in July fell to their lowest level since September, according to the latest Fund Flow Index from Calastone, the global funds network.
In a statement Abrdn said share/unitholders would continue to gain exposure to high-quality commercial real estate in UK and, going forward, globally, in their preferred daily dealing format.
Anne Breen, global head of real estate, Abrdn, said in a statement: “The UK Real Estate Fund is of strategic importance to Abrdn and is a key product offering for wholesale investors in the UK. By making these changes to the strategy we are continuing to evolve and enhance our product range to ensure we offer a range of market leading real estate solutions to both existing and prospective investors. abrdn have a long track record of investing both directly and in listed real estate which we believe will underpin the success of this strategy.”
Abrdn said the decision had followed the Financial Conduct Authority consultation paper 20/15 in 2020, which proposed notice periods – either 90 or 180 days – on open-ended, daily traded funds that invest over 50% of their assets in direct real estate. It added: "While some time has elapsed since the original consultation, and indeed the FCA feedback statement in 2021, Abrdn anticipates that these significant industry proposals will remain on the agenda, understandably given the history of the sector from a liquidity perspective."