InvestmentsMar 7 2022

Janus Henderson suspends property fund amid buyer search

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Janus Henderson suspends property fund amid buyer search
Luke MacGregor/Bloomberg

Janus Henderson has suspended trading in its property fund as it searches for a buyer for its underlying assets.

The company confirmed today (March 7) it is looking to sell the fund's portfolio, due to “various factors” including the forthcoming regulatory changes to the notice period for redemptions from property funds, which Janus Henderson said had led to “persistent” net outflows from the fund.

In a statement, the company said: “This has reduced assets under management materially to the point of challenging the portfolio’s future shape and quality, along with expected returns to investors.”

The property fund was suspended at noon on Thursday (March 3), alongside its feeder fund, a decision taken by the board of Henderson Investment Funds to ensure the portfolio sale is given the best chance to succeed. 

Simon Hillenbrand, head of UK retail at Janus Henderson said, should the company find a buyer, the net proceeds of the sale will be distributed to investors.

Although a completion date has not been confirmed, this could happen towards the end of March or beginning of April, he said.

“We believe it is in the best interests of investors in the fund that we take steps now to secure the best outcome for them.”

Last week Janus Henderson said it was exploring various options for the future of its property fund amid the backdrop of regulatory uncertainty.

Ryan Hughes, head of investment research at AJ Bell, said the news last week will have unsettled investors and could have resulted in a number of them looking to sell the fund, causing liquidity pressures that have been seen before. 

"By suspending the fund, it will allow for a more orderly process in selling but will no doubt cause significant concern for investors in the £1bn fund who now can’t access their money again."

He said the move again underlines why open-ended property funds remain ill-suited to the daily dealing expected from Oeics, as any pressure leads to the funds suspending to avoid investors rushing to the exist faster than the managers can sell.

"It’s certainly possible that this move may push investors in the few other open ended property funds to re-evaluate their exposure and potentially sell out, causing a ripple effect," he said, adding that the conclusion to the FCA's review into the vehicles "can't come soon enough".

Last year the FCA launched an open-ended investment fund structure - the long term asset fund - giving investors to access to property, infrastructure and other illiquid assets but with a notice period of at least 90 days. 

The regulator's action is aimed at addressing the so-called "liquidity mismatch" which has seen open-ended property funds gate for withdrawals at various points over the past 10 years due to flurries of redemptions amid economic uncertainty - for example due to Brexit or the uncertainty surrounding the Covid-19 pandemic.

Last May, the FCA 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, and the regulator has not outlined any further details to date. 

The Janus Henderson fund was valued at £1.04bn at the end of last year, and is managed by Ainslie McLennan and Marcus Langlands Pearse

It has outperformed the IA UK Direct Property sector over the past five years, posting a 28.29 per cent return of the five years to March 2, compared with 18 per cent seen by the IA sector. 

It has also sat in the second quartile of the sector for the past three years, according to FE Fundinfo.

However, when the Covid pandemic sent jitters through property markets and caused a number of suspensions due to valuation difficulties, Janus Henderson’s fund was one of the last to re-open.

It closed for dealing in March 2020, when independent valuers said they were unable to provide accurate and reliable valuations for the funds’ assets, and only re-opened in January last year.

Liquidity mismatch

The aim of the Ltaf would be to solve the fundamental mismatch of the illiquid nature of real estate that is held by funds which allow investors to trade daily.

Former Bank of England governor Mark Carney said funds which invest in illiquid assets but offer daily dealing are "built on a lie".

The longest period of suspension came in 2020, as real estate valuers enacted ‘valuation uncertainty’ clauses on the funds as they were unable to adequately value the properties held by the funds due to the pandemic. 

Investors hurried for the exit, and the funds were at risk of having to conduct a fire-sale of assets to fulfill these withdrawals. 

Most funds gated for a number of months until the market settled and they were able to build up enough cash reserves to be satisfied that they could fulfill redemption requirements.

sally.hickey@ft.com