Following our decision in July to suspend the recommended ratings on all the funds in the Academy of Funds which invest in physical property, we would like to update investors as to the events which have unfolded over the summer months.

Following the Brexit referendum, the UK commercial property market saw significant outflows from retail investors. To put this into perspective, the order of magnitude of outflows in June alone was around four times that of those seen during the financial crisis. This clearly caused huge issues for managers investing in what has always been a very illiquid asset class.

At the same time, managers were uncomfortably aware that a market with a decided lack of transactions was hard to price and took the difficult decision to apply fair value adjustments to their portfolios. This was done in an attempt to treat all investors equally and not disadvantage existing investors by letting others redeem holdings at artificially inflated prices.

In the last few months things have gradually started to settle down in property markets. Pricing seems to have stabilised, and most funds have now removed the majority, if not all, of their fair value adjustments. In addition, several funds have re-opened, or announced their intention to re-open within the next few weeks.

At time of writing the summary of the positions of funds in the Academy of Funds is as follows:



Our decision to suspend the ratings on all of our property funds was largely due to market conditions. We are now satisfied that these conditions, whilst perhaps not easy, have normalised to the extent that we can lift our blanket suspension. We are thus in a position to revert to our normal practice of considering recommendations on a fund by fund basis. Given that the L&G UK Property fund remains open and has now removed the fair value pricing adjustment which they were applying, we are pleased to announce the reinstatement of our recommendation of this fund.

Unfortunately the other four property funds in the Academy remain closed and we therefore feel that it is appropriate to maintain the suspension of the ratings on these for the time being. We will reassess these on a case by case basis as and when newsflow comes through, but in general we will want to see a successful reopening, with appropriate cash levels, before we would feel comfortable recommending these funds to investors again. Both Henderson and Standard Life have announced their intention to open in mid October, and we will review these ratings at that time, after having given them adequate time to prove that they have raised appropriate cash levels to fully meet investors' redemption requests.

We are pleased that the commercial property markets seem to be stabilising, funds re-opening, and that managers are able to get back to the day-to-day job of managing their funds. We have a high regard for all the managers in the Academy of Funds, and respect the fact that managers acted in what they felt was the best interests of their existing investors, whether that meant closing a fund or applying a fair value pricing adjustment. We also admire that they did this in such an orderly fashion, keeping investors well informed. However, investors should be aware that investing in such an illiquid asset class as commercial property in a daily dealing vehicle does bring risks and that it is entirely possible that property funds could suspend trading again at some point in the future. If this is a risk which investors do not want to take then they should consider alternative asset classes.