First 50 Fund update: ‘Investor uncertainty’ is biggest challenge for Henderson UK Property

29 November 2017

Uncertainty from investors amid a backdrop of Brexit negotiations is the biggest challenge in 2018 for Henderson UK Property, its co-manager Ainslie McLennan told Moneywise.

Mrs McLennan said that the key challenge for the fund – which invests in UK commercial real estate and is a Moneywise First 50 fund for beginner investors – is uncertainty over whether money is coming in from investors, and therefore whether there’s enough cash to reinvest in buying more properties.

This investor unease follows the suspension of the fund - and many other open-ended property funds - between 5 July and 14 October 2016, when there wasn’t enough cash to deal with withdrawals following the Brexit vote on 23 June 2016.

At the time, the fund held about £4 billion in investors’ money, which has since dropped to £3 billion. Before the referendum vote, the fund also held 15% in cash, a figure which now stands at 16.9%.

Mrs McLennan said that the “new normal” is to hold around 20% in liquid assets, that can easily be bought and sold, unlike commercial property. However, she added that she doesn’t expect a suspension to happen again. “I’ve never cried at work in the 15 years I’ve worked at Henderson but I did have a tear in my eye the day we suspended the fund,” she said.

When asked by Moneywise why investors would opt for an open-ended property fund rather than a close-ended property fund, such as a property trust, Mrs McLennan said there's "no right or wrong" and that investors should be "happy to buy the best in both fields".

Mrs McLennan continued that there’s “no perfect structure for a daily traded fund”, but said she believes she’s mitigated the fund against future risk. In London, for example, she said “fractures are beginning to show” and she expects rents to move back.

As a result, the fund has made “bold sales” and now only includes five London offices – the largest of which is a 10-year government tenant in Southwark. The fund has also completely sold out of the West End, although Mrs McLennan pointed out that they did well from these sales, partly due to overseas investors staying active with a weak Sterling holding up the market.

Regional offices in the North have also been sold. Mrs McLennan said: “The Northern Powerhouse should be a good place to invest in property but it’s been difficult to fully let and to grow rents.”

Instead, she cited logistics and distribution properties as a “sure-footed place to be” and said the fund bought into these markets early.

“Alternatives is also a good sector for us,” said Mrs McLennan. Here she cited examples, such as hospitals, care homes, and four student properties in Exeter, Durham, Glasgow and Kingston.

Retail parks is also an area, which is “useful” for the fund given their typically long leases and the “future-proofing” and value that can be added – for example, adding electric charging points in car parks given the government push to move towards this type of vehicle.  

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