Aviva UK Property Fund closing

[Simpo Two]

Well it's been suspended for over a year, and Aviva have finally decided to put the donkey down.

According the letter which arrived this morning they are now starting to sell the properties, and say it will take 12-24 months to do this, with stage repayments along the way. 'The amount that you will receive will depend on the sale value of each property'. What a great time to sell commercial property.

They give you choice to take the fallout as cash, or to reinvest in any of 41 other Aviva funds.

So, assuming that last year I had roughly £10K invested, how much am I likely to see again? £5K over 2-3 years?

[Cheib]

I would think more than £5k...really depends what the properties were...waht their locations were and type. Logistics parks you'd be probably getting more than you invested. Hotels in Central London aimed at people here on one or two day business trips from abroad....disaster zone. These kind of funds generally invest in new build our of town assets though.

[Mr Moley]

Simpo Two said:

Well it's been suspended for over a year, and Aviva have finally decided to put the donkey down.

According the letter which arrived this morning they are now starting to sell the properties, and say it will take 12-24 months to do this, with stage repayments along the way. 'The amount that you will receive will depend on the sale value of each property'. What a great time to sell commercial property.

They give you choice to take the fallout as cash, or to reinvest in any of 41 other Aviva funds.

So, assuming that last year I had roughly £10K invested, how much am I likely to see again? £5K over 2-3 years?

The commercial property market is actually relatively buoyant at the moment and I would expect you to do a little better than your estimate, even given the below

The concern here is that this is a fund that has been in terminal decline for more than a decade now (pre credit crunch it was over £4bn in size) and therefore the Crown Jewels are long, long gone and what remains will be the dregs of the retail and office portfolios.

The FCA have really not helped the retail funds in the last 12 months either with their dribble about redemption periods and I think it's been the final nail in the coffin of this one.

When you're out I would also look at a different manager, there are way better out there....

[Simpo Two]

Mr Moley said:

The commercial property market is actually relatively buoyant at the moment and I would expect you to do a little better than your estimate, even given the below

I invested £6K about 10 years ago and it staggered up to £9K by early last year (when I almost sold it, doh!). It would be nice to have what it was worth when suspended, but if they're going to be selling off stuff in a fire sale it can't be good I think. And of course they will taking fees from it all the time.

Any other Aviva funds worth considering or am I better off out of it?

[Mr Moley]

Simpo Two said:

I invested £6K about 10 years ago and it staggered up to £9K by early last year (when I almost sold it, doh!). It would be nice to have what it was worth when suspended, but if they're going to be selling off stuff in a fire sale it can't be good I think. And of course they will taking fees from it all the time.

Any other Aviva funds worth considering or am I better off out of it?

I think that's the only retail (investors) fund they had left? The rest is institutional and life money. They'd probably try to put you into a product that isn't direct real estate

I would be looking probably either at the Tritax REIT or may I humbly suggest my Fund which is the only open-ended, daily priced 'long income' PAIF for retail investors....

[Simpo Two]

Mr Moley said:

I think that's the only retail (investors) fund they had left? The rest is institutional and life money. They'd probably try to put you into a product that isn't direct real estate

I would be looking probably either at the Tritax REIT or may I humbly suggest my Fund which is the only open-ended, daily priced 'long income' PAIF for retail investors....

Actually the form lists 41 Aviva Investors ICVC to choose from - income, growth. both, multi-asset, multi-manager and multi-strategy funds. Even a 'Climate transition global equity fund'!

I'm not keen on going back into property, it seems too illiquid.

[Mr Moley]

Simpo Two said:

Mr Moley said:

I think that's the only retail (investors) fund they had left? The rest is institutional and life money. They'd probably try to put you into a product that isn't direct real estate

I would be looking probably either at the Tritax REIT or may I humbly suggest my Fund which is the only open-ended, daily priced 'long income' PAIF for retail investors....

Actually the form lists 41 Aviva Investors ICVC to choose from - income, growth. both, multi-asset, multi-manager and multi-strategy funds. Even a 'Climate transition global equity fund'!

I'm not keen on going back into property, it seems too illiquid.

Yeah so none of those are direct real estate products

You do get a significant illiquidity premium with real estate funds over the equivalent fixed income products despite many offering daily liquidity (at least in theory) unless there are significant external events, such as covid, that cause the valuers to invoke uncertainty clauses. On a risk adjusted return basis it does look attractive to me at the moment, but then I am biased

[Simpo Two]

Mr Moley said:

You do get a significant illiquidity premium with real estate funds over the equivalent fixed income products despite many offering daily liquidity (at least in theory) unless there are significant external events, such as covid, that cause the valuers to invoke uncertainty clauses. On a risk adjusted return basis it does look attractive to me at the moment, but then I am biased

Thanks - but after this experience I'm in no hurry to buy the same again. But perhaps there are funds that invest in shares in property funds - so you can buy and sell without anyone having to sell an office block first?

[Mr Moley]

Simpo Two said:

Thanks - but after this experience I'm in no hurry to buy the same again. But perhaps there are funds that invest in shares in property funds - so you can buy and sell without anyone having to sell an office block first?

In theory no fund should have to actually sell a property for you to redeem as they hold cash. In extremis as you've seen this isn't always the case in reality.

You could go for a REIT (as per the Tritax one I recommended above) which does hold direct property but in a listed unitised structure, or down the multi manager/ Fund of Funds route for genuine indirect real estate exposure

[blueg33]

Interesting. Aviva are still buying real estate asset in the UK. Index linked lowish yield, government back rent.

[xeny]

Simpo Two said:

But perhaps there are funds that invest in shares in property funds - so you can buy and sell without anyone having to sell an office block first?

If there's enough of a stampede for the exit they'll still be stuck. Similarly a REIT presumably goes to a deep discount during property market stress.

Essentially expecting any ownership structure to completely shield you from the underlying illiquidity strikes me as optimistic/unrealistic.

[WindyCommon]

Mr Moley said:

I think that's the only retail (investors) fund they had left? The rest is institutional and life money. They'd probably try to put you into a product that isn't direct real estate

I would be looking probably either at the Tritax REIT or may I humbly suggest my Fund which is the only open-ended, daily priced 'long income' PAIF for retail investors....

Is this the right Time for that?

[LeoSayer]

xeny said:

Simpo Two said:

But perhaps there are funds that invest in shares in property funds - so you can buy and sell without anyone having to sell an office block first?

If there's enough of a stampede for the exit they'll still be stuck. Similarly a REIT presumably goes to a deep discount during property market stress.

Essentially expecting any ownership structure to completely shield you from the underlying illiquidity strikes me as optimistic/unrealistic.

The only realistic way to run such funds is by limiting the subscription / redemption points to be in line with what can realistically be achieved given the liquidity of the underlying assets.

That may mean quarterly fund dealing or even less and even then, it doesn't rule out the possibility of further suspensions.

How is it even fair that I can buy units in a fund today and then redeem next month? I will have earned a portion of the rental income without my funds being used to buy a property. Doesn't this dilute the value for those who owned units at the start?

[NickCQ]

blueg33 said:

Interesting. Aviva are still buying real estate asset in the UK. Index linked lowish yield, government back rent.

Mostly likely for their own balance sheet backing annuities and so on - the funds were always quite small (<£5 bn) in relation to the annuity and pension books (>£100 bn).

[Simpo Two]

LeoSayer said:

How is it even fair that I can buy units in a fund today and then redeem next month? I will have earned a portion of the rental income without my funds being used to buy a property. Doesn't this dilute the value for those who owned units at the start?

If I'm effectively lending my money for them to buy property, is it unreasonable to expect some of the rent as a 'dividend'? Presumably all these properties have been generating rent but very little of it seems to have come my way, at least for several years. Maybe I was just helping them to buy property and keep the rent...

[NickCQ]

WindyCommon said:

Is this the right Time for that?

Very good

[Mr Moley]

NickCQ said:

WindyCommon said:

Is this the right Time for that?

Very good

Impressed that you worked that out!

[Mr Moley]

NickCQ said:

blueg33 said:

Interesting. Aviva are still buying real estate asset in the UK. Index linked lowish yield, government back rent.

Mostly likely for their own balance sheet backing annuities and so on - the funds were always quite small (<£5 bn) in relation to the annuity and pension books (>£100 bn).

Almost certainly for Lime (the institutional long income fund) or REaLM

[Mr Moley]

xeny said:

Simpo Two said:

But perhaps there are funds that invest in shares in property funds - so you can buy and sell without anyone having to sell an office block first?

If there's enough of a stampede for the exit they'll still be stuck. Similarly a REIT presumably goes to a deep discount during property market stress.

Essentially expecting any ownership structure to completely shield you from the underlying illiquidity strikes me as optimistic/unrealistic.

Yes you are quite right, and the same applies to other asset classes too, Woodford anyone? As soon as the valuers invoke uncertainty clauses the FCA guidance is that you close the fund.

[Cheib]

Simpo Two said:

LeoSayer said:

How is it even fair that I can buy units in a fund today and then redeem next month? I will have earned a portion of the rental income without my funds being used to buy a property. Doesn't this dilute the value for those who owned units at the start?

If I'm effectively lending my money for them to buy property, is it unreasonable to expect some of the rent as a 'dividend'? Presumably all these properties have been generating rent but very little of it seems to have come my way, at least for several years. Maybe I was just helping them to buy property and keep the rent...

They were probably using the rental income either for buying other properties built to spec, servicing debt (the fund might use leverage) and of course for paying their management fees. Given where property yields are now my guess is on a fund that’s been around for a while the fees would have been a big % of the carry/yield. Yields were probably 5 to 10% when this fund was launched so fees wouldn’t have been an issue.

As others have said...the idea of a fund that invests in illiquid assets that take 6 to 18 months to buy and sell which gives its investors daily liquidity is just a nonsense and should never have been allowed by the regulator.