This prompted a wave of margin calls for DB pension schemes due to liability-driven investments, a derivative that hedges against rising interest rates and inflation.
Eventually the Bank of England stepped in, suspending its bond selling programme, which stabilised markets.
Waves of redemptions
The issue raises the problem once again of the fundamental mismatch between the daily dealing of some property funds and the illiquid nature of their underlying holdings.
The issues began after the Brexit vote in 2016, when the funds rushed to gate for redemptions amid concerns over valuations.
Then again in 2020 the pandemic left the fund managers with no choice but to suspend the funds again, after most independent valuers said the market conditions left it impossible to value the makeup of the portfolios.
In May last year Aviva Investors closed its UK property fund over concerns that it had become increasingly challenging to generate positive returns while also retaining enough liquidity to re-open the fund, which remained gated since the start of the pandemic.
The next month Aegon also closed its property fund, citing similar issues.
The FCA opened a consultation into the future of open-ended property funds, however last May it said it would not confirm specific property fund rules until a consultation on the long-term asset fund had been completed.
This was concluded in October last year, and the regulator has not outlined any further details to date.
Meanwhile, the International Monetary Fund has warned that the high redemptions seen in open-ended bond funds could trigger further outflows, constituting a “major potential vulnerability”.
The body said these withdrawals could amplify market stress and “potentially undermine the stability of the financial system”.
sally.hickey@ft.com
