Legal & General UK Property fund – trading suspension

Please find below a communique from Legal & General regarding their UK Property Fund, in which many of you have money invested as part of your portfolio. To put this in context, for an average risk investor this would represent 12% of your portfolio, which effectively means that at this stage you still have access to 88% of your portfolio, should you so wish. We support Legal & General in seeing this as a prudent measure to avoid any pressure on management of this fund during this Crisis, and as stated below, the fund still has significant liquidity in its Cash & Real Estate Investment Trust holdings, totalling around 26%. Such actions are often taken during times of economic crisis to avoid disorderly management of the fund in order to allow it to return to growth. If you do have any questions then please do not hesitate to contact your adviser.

 

We are writing to confirm that in light of market volatility and the exceptional circumstances in the UK property market, we have taken the difficult decision to suspend trading in the Legal & General UK Property Fund (the “Fund”) and Legal & General UK Property Feeder Fund (the “Feeder Fund”).   The suspension will apply to any instructions to be effected on or after the valuation point at 12.00 midday on 18th March 2020. This means we cannot process any instruction to buy, sell, transfer or switch shares in the funds placed after midday on 17th March 2020. Any monies received for purchases will not be accepted and will be returned to investors. The suspension will remain in place until further notice.

Why have we suspended dealing in the fund? Given the impact of the COVID-19 virus outbreak on global financial markets, the Fund’s independent valuers, Knight Frank LLP, has introduced a material valuation uncertainty clause as of 18th March to its valuations of the underlying properties in the Fund. As this means we cannot be confident about the valuation of properties, in the interests of customers and in the light of our regulatory responsibilities we have taken the decision to suspend the Funds.

This uncertainty is due to the unprecedented set of circumstance caused by the COVID-19 virus impacting market activity across all sectors. This means the independent valuers are unable to rely on previous market experience to inform their opinion of values of the properties held by the Fund. We believe this suspension to be the fairest outcome for all investors, taking an appropriate forward looking view through the current crisis. While the Funds have sufficient liquidity to meet redemptions received so far, we have taken this action as a prudent and temporary measure until such times as these extreme conditions stabilise and the uncertainty around property valuations is removed.

Fund positioning Despite the suspension, the Fund’s strategic position is particularly well placed for the long-term UK property market outlook. The property portfolio is well diversified across sectors and geography, with assets in locations we believe to be strong and below benchmark vacancy rates. From a sector position the portfolio is overweight to industrial and alternatives which we believe to have better long term dynamics and underweight to the retail sector, which is currently the weakest part of the market. At present we have high levels of liquidity with 24% held in cash and 2% in Real Estate Investment Trusts, which should help us navigate the market during this declared period of valuation uncertainty.
What happens next? We will continue to monitor the Fund and market closely and take all actions that we consider to be in the best interests of investors, with a view to resuming dealing in the Funds as soon as possible. We continue to engage frequently with our regulator, the FCA, our independent valuers and with industry bodies such as the Association of Real Estate Funds. Once valuation certainty has been re-established by the independent valuers, we will look to reopen the Funds as soon as we are able.   For now, any requests to buy, sell or exchange shares of the Funds during the suspension will not be processed.  If you placed orders to buy, sell or exchange shares since the Funds were suspended, we ask that you kindly re-submit them once dealing resumes

Client’s Withdrawals

While we find property funds suspended, this does mean we are unable to release these funds for your withdrawal requests. In this case, we would look to take additional monies across the other funds held in your investment portfolio until such a time as the suspended property funds re-open. This may slightly skew your risk profile to be overweight in property as other asset classes are used for liquidity. Once the property funds re-open, it would be good for us to re-balance your portfolio so to bring back in line. To do this we would need to touch base with you and get your authority.