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Q. I invested €30,000 in the Aviva Irish Property Fund in 2013 and view it as a 5 to 7 year investment. It’s an open-ended fund so I can encash it or switch to another Aviva Fund at any time. I am happy with it’s performance to date. However, following the Brexit referendum I read that some UK property funds, including Aviva and Standard Life, both of which I understood are also open-ended funds, have closed these funds and that investors can’t get their money out.
Can you explain why this has happened ?
Could this happen to the Aviva Irish Property Fund ?
1. In answer to your first question :
(Open-ended) Property Funds, such as the ones you mention above, invest in commercial property by purchasing offices, shops, warehouses and industrial buildings directly. They will hold a portfolio of properties and generate returns from a combination of rental income and capital growth. As they are open-ended funds, investors can usually invest or encash their holdings in the property fund at any time, in other words they are liquid.
However this depends on the particular property fund and whether there is enough cash in the fund to meet investor encashment demands. If lots of investors decide they want to encash their holdings or switch to another fund and there isn’t enough cash to meet their requirements, then the fund manager may decide to :
Increase the difference (known as the spread) between the buying and selling price of the fund to discourage encashments and protect existing investors, and/or
Close the fund for encashments and place a moratorium (usually 6 months notice) on encashments. This means that investors must give 6 month’s written notice to the Fund Manager (eg Aviva) of their wish to encash their holding. The reason for this is to give time for the Fund Manager to sell a property or properties and raise cash to pay investors.
This is essentially what has happened in the case of the UK property funds which you mention above. Hopefully this will be a short-lived and temporary measure but there are no guarantees when this might be reversed.
2. The Aviva Irish Property Fund invests in Irish Commercial Property and is still open for business. It is not affected by the measures taken on the UK property funds. I contacted my
Aviva broker consultant earlier this week who confirmed that this Fund is currently liquid and investors can invest or encash their holdings as normal. He said that the Fund continues to attract investors and is experiencing strong new cash flow which they expect to continue for the present.
However it is important to note that should a similar set of circumstances occur in any open-ended Property Fund then investors may be subject to the same restrictions due to liquidity issues. Therefore we always highlight that this is one of the reasons investors should have sufficiently diversified investment portfolios.
For advice on investments and suitable investment portfolios please consult Belinda McCauley at Money Plus, your local independent financial broker. Belinda and her colleagues at Money Plus, Bridge St, Boyle would be delighted to help you. Belinda can be contacted at 071-9194000/ 086-7847827 or by email: [email protected]