Why we're making these changes
Why are you making these changes?
Direct property assets can’t be easily bought and sold at short notice. If the market experiences a stress event which causes lots of investors to sell property assets at the same time, or makes it more difficult for investors to finance transactions, we may not be able to find willing buyers at reasonable prices. Having the ability to freeze the option provides a safeguard by allowing some time for the market to recover before selling property assets.
The Cap, which is the maximum you can invest in the Property option, ensures you don’t have all your super invested in the Property option so you can still access some of it if the Property option is ever frozen.
Is freezing an investment option a common approach?
It isn’t common practice to freeze an investment option, but it is an approach that may be applied in exceptional circumstances, particularly when the investment option is illiquid, or difficult to convert to cash easily, as is the case with direct property.
In the UK, after the European Union referendum (or Brexit vote), a large number of property investors attempted to get out of the UK property market. In response, seven UK retail investor property funds temporarily froze or suspended redemption requests. These funds represented about £16bn in value or approximately 60% of the UK retail property fund sector.
The remaining UK property funds opted to let investors continue making redemption requests during the period of valuation uncertainty, which meant they often had to sell assets at deeply discounted rates. These forced sales impacted both investors seeking to sell their assets and those who remained in the UK property funds. One such fund was forced to sell at a 15% discount to its pre-Brexit valuation.
Three months later the market rebounded from the short-term impact of the Brexit vote. The seven UK property funds that had frozen redemption requests were able to lift the freeze and had not been forced to sell at the same deeply discounted rates as those UK property funds that hadn’t frozen redemption requests.
Should I be worried about the outlook for the property market?We continue to have a positive outlook on direct property. The changes are being put in place now as a proactive risk measure to ensure we’re able to act in the best interests of our members should a stressed market event occur in future. A freeze will only be applied to the Property option in exceptional circumstances.
Read our property update to find out more about our outlook and strategy.
Have you consulted with members?
Yes. Before we made these changes, we asked over 1,400 members who were invested in the Property option about the types of strategies they’d be most willing to accept to help manage the risk of not being able to easily convert property assets into cash — commonly known as liquidity risk.
Of the potential options we presented, the majority of members reported they would be most comfortable with a maximum 2-year freeze period on accessing assets and were open to the idea of an investment Cap to ensure some of their super was invested in an asset class that could be more easily converted to cash.