It was in the news this week that one of the largest actively managed commercial property fund managers in the UK has reportedly suspended dealings in one of its far eastern property funds after receiving a withdrawal request from its two largest investors, who collectively hold over 75 per cent of the fund’s total assets.
The firm says that the fund will close its doors on 21 August; however investors have been warned that it could take up to two years to receive their money back due to the ‘complexities’ of selling the fund’s assets.
Diversification is one of the most effective risk management tools available to investors and advisers. Not only do you have to diversify between different assets, but this instance clearly shows that it is incumbent on advisers to carefully check out diversification within funds. There will inevitably be a number of UK investors in this fund, who suddenly find themselves with an illiquid asset, which for some, could coincide with a time when they need access to funds.
At Callisto, we do extensive due diligence on all of the funds within our portfolios to ‘look under the bonnet’ of the headline facts and figures to prevent issues like this occurring in our client portfolios. We do have an allocation to commercial property, but we use a passively managed global Real Estate Investment Trust (REIT) fund, which is an equity fund investing in property assets, so is therefore highly liquid.
This troubled fund is an actively managed commercial property fund. Active management is what Charles Ellis called a loser’s game – a game that, whilst it is possible to win, has odds of doing so that are so low that it isn’t sensible to try.
Again, the fundamental investment principles that we endorse at Callisto like diversification prove to be valuable for our clients. Let’s hope that these other clients have other liquid assets to tide them over for the next two years…….