Standard Life became the latest insurer to close the doors of its commercial property funds to immediate withdrawals yesterday, forcing more than 200,000 investors to wait as long as six months to get their hands on their money.
The Scottish insurer implemented the emergency measures yesterday morning after liquidity in six of its life and pension property funds fell to very low levels. As a result, investors who want to remove their money from Standard Life's property funds – which have assets totalling just under £2.7bn – will be placed in a queue, and told they may have to wait as long as six months for the transaction to be processed.
The move comes less than a week after Norwich Union imposed similar measures on one of its largest property funds, trapping a similar number of investors into its funds. The two closures in quick succession may indicate the start of a new rash of temporary fund closures, as conditions in the com-mercial property market continue to deteriorate. A number of commercial property funds – including those managed by Friends Provident, Aegon and Scottish Widows – were temporarily closed to withdrawals at the start of last year, and towards the end of 2007. In the case of Aegon, customers were told they may have to wait as long as a year to redeem their investments.
However, Friends, Aegon and Scottish Widows have all since ended the restrictions, having restored the necessary liquidity to their funds.
Standard Life said yesterday that it had been carefully managing liquidity in its fund over the past year to try to avoid the need to put a halt on instant withdrawals. However, it said it had now reached the stage where it needed to act, to protect investors who wished to stay in its property funds.
The commercial property market continued to deteriorate in 2008, as many more businesses closed down or scaled back their operations. As a result, fund managers have found it hard to sell properties in their portfolios for a fair price, and have imposed the restrictions on withdrawals to protect them from being forced to dispose of some of their holdings at knockdown prices.
"Our decision to introduce a queuing system on some of our property funds is designed to ensure fairness," said John Gill, the managing director of customer services at Standard Life. "The continued deterioration of the UK commercial property market means we have to introduce some controls over the programme of sales of properties from within certain funds.
"Whilst this is an established method of dealing with such a situation, we also appreciate it is an unwelcome one for some investors. However, failure to act now would increase the risk of us not being able to achieve the best deal for all investors in the fund, including those who intend to remain invested over the long term. Despite the existing difficulties for commercial property, we firmly believe that our property funds are well positioned for recovery over the medium to long term."
The closing to withdrawals of another property fund is yet another piece of bad news for investors, who have already seen the value of their investments plummet over the past couple of years. According to Trustnet.com, the fund research website, the average commercial property fund has lost almost a third of its value over the past year, with the worst funds more than halving in value.
The news completes a bad month for Standard Life investors. A few days ago, it was revealed that one of Standard Life's cash funds – which are meant to be a safe haven for investors' money – had lost around 5 per cent of its value, after some of the portfolio had been invested in toxic mortgage securities.
Meanwhile, Standard Life also announced a series of cuts to the bonus rates in its with-profits funds yesterday, following the volatile market conditions which prevailed throughout 2008. The insurer's with-profits bonds fell by as much as 13.9 per cent over the year, while its mortgage endowment policies lost around 4.5 per cent of their value. However, Tom McPhail, the head of pensions research at Hargreaves Lansdown, the Bristol-based financial advisers, said that the results for Standard Life policyholders were not nearly as bad as the cuts announced by Friends Provident and Norwich Union over the past few weeks. Nevertheless, he questioned whether with-profits funds were the right product for most investors today, advising customers to review their investment choices. He added that Standard Life's market value reductions – penalties for cashing in with-profits products – are lower than most of its rivals, meaning it may not be too costly to cash in an endowment or with-profits bond and reinvest the money elsewhere.
Standard Life insisted that with-profits were still providing some protection from the worst effects of the recent significant stock market falls.