Two major property funds hit with significant withdrawal of cash

Two of the biggest property funds in the State have been hit with significant withdrawals of funds in recent months, The Irish Times has learned.

The Irish Life Irish Property Fund and the Friends First Irish Commercial Property Fund – managed by Aviva – which have a combined value of more than €1.4 billion, both wrote to investors this week to alert them to the outflows, and to signal that they were now pricing the fund on a "disposal basis".

The value of a fund goes down when it is switched to a disposal basis as the assets within it are valued differently. The overall value of the Irish Life fund decreased by 7 per cent as a result of the change, and Aviva/Friends First fund reduced by 9.1 per cent.

The firms said the change in strategy did not signal an immediate plan to dispose of assets, but property sources said the step may indicate that the funds are readying to sell down assets if it became necessary.

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In a statement, Aviva confirmed that it had moved the pricing of the fund “from an acquisition to a disposal basis” with effect from Wednesday. “This decision was taken to protect the best interests of the policyholders who remain in the fund and follows some recent net outflows.”

In a note to clients, Irish Life said the fund had “moved to a net outflow position” during 2019. A spokesman for the company said its view for Irish property in 2020 “remains positive” and that “we remain positive about the long-term growth potential of the commercial property market in Ireland”.

He noted that 2019 saw €7.2 billion in commercial property transactions and that there was continued interest from international investors “who accounted for over 70 per cent of investment volume”.

Small investors

The majority of the fund withdrawals have come from smaller investors and brokers who make up the investment base of the two funds. Both companies, which have performed strongly in recent years, have sufficient cash to pay out any investors who are withdrawing, and there is no need to sell assets to meet any liquidity requirements.

Commercial property sources believe the step signals that many of the smaller investors and brokers feel that the time is right to take money off the table after several years of extremely strong returns.

The €1.34 billion sale of Green Reit last year has also fuelled a belief among some in the investor community that the Irish commercial property market is at the end of a long growth cycle. Similarly, some investors may be tempted to put money into listed Irish property investors, which are currently trading at a discount. Concerns around the retail sector were also cited by sources as a reason investors are acting now.

Irish Life and Aviva reiterated their belief that Irish commercial property was a good long-term investment last night. Suzie Nolan, senior property fund manager with Aviva, said its view was "that the fundamentals of the Irish commercial property market remain strong".

“This change in pricing is not as a result of deteriorating fund or market performance,” Ms Nolan continued.