As many as 57 UK LGPS have invested in UK property funds – the most troublesome asset class in the post-Brexit market, Modern Investor's analysis of Citywire Global WOW (Who Owns What) database can reveal.
As increasingly more asset managers suspend trading in their UK property funds this week in the face of a wave of redemptions, the whole asset class was in for a tough ride.
Citywire's head of cross border investment research, Dr. Nisha Long. said: ‘Investors have shunned UK growth and property funds in the run-up to the referendum, and this trend hasn’t eased after the vote. Property funds are in for a volatile period and price adjustments are already starting to happen. There is also difficulty in valuing properties since the Brexit vote.’
From an international investment perspective Long added: ‘Part of the appeal of the UK for those investors was the strength of the currency and the economy. For these overseas investors the UK looked like something of a safe haven which has now been erased after the Brexit vote.’
Our analysis of the Citywire Global WOW (Who Owns What) database, which is accurate as at the end of FY 2015, shows that 57 LGPS have invested a total of £1.71 billion in 14 UK property funds.
Of these, 39 UK local authorities’ pension schemes put their money into BlackRock UK Property (almost £600 million) while Schroder UK Property came in second (£495 million), and Unite UK Student Accommodation Fund third (£157m).
Among the LGPS most exposed to the asset class is Devon, which invested a total of £79.7 million in five funds. Dundee comes in second with 74.5 million invested across three funds while Wiltshire invested £74.1 million in six UK property funds.
Based on the data from Global WOW, we created an interactive network graph (below) which shows all UK local authorities investments in UK property funds.
How to read the graph: Each node of the graph represents either a UK local authority pension scheme (blue nodes) or UK property fund (orange nodes). If you move your mouse cursor over any of the blue nodes, it will highlight the links between the selected LGPS and funds it has invested in. Conversely, if you move it over an orange note, it will highlight all the LGPS that invested in the selected fund. The size of each node, as well as the distance for the centre of the graph, represents the amount of money invested.
To see the larger version of the graph, please follow this link.
Commenting on the portfolio and strategy of the two most popular UK property funds among LGPS – BlackRock UK Property and Schroder UK Property – Nisha Long said: ‘Both funds are diversified well with choices of ‘alternative’ property sectors as well as the traditional. For property exposure, they can perhaps limit the downside we are probably going to see over the next few months as the property market once again tries to find its feet in such areas as pricing of properties after the Brexit vote.’
She added that the Blackrock fund’s approach was almost like a ‘safety first’ approach whereby the manager had low-risk, low-yielding assets in the portfolio. ‘The fund invests across the board in industrials, office and retail across the UK but it also does invest in marinas, doctor surgeries and student housing. So it’s very diversified - useful diversifier with capital gains and income uncorrelated with shares.’
She added that the Schroder fund also had a blend of ‘alternative’ property sectors including student housing, leisure and healthcare – alongside the traditional investments.
You can see the reusable data we used to write the story under this link (Google Spreadsheets).