BlackRock has started paying back investors stuck in its £3.5bn UK Property fund since early last year, even as outflows from commercial real estate funds continue and regulators warn that some funds may struggle to meet redemption requests.
The US-based fund group has begun partially repaying institutional investors who made withdrawal requests as far back as the second quarter of last year, according to people familiar with the situation. BlackRock declined to comment.
BlackRock was among a number of large property fund managers that were forced to delay redemptions last year to slow a rush for the exit by institutions. Many investors had become spooked by tough market conditions as inflation surged and interest rates rose. BlackRock’s fund only allows quarterly withdrawals.
Other institutional funds managers, including M&G and Schroders, also deferred withdrawal requests and have yet to lift their blocks.
BlackRock’s move comes as the European Central Bank this week called for a clampdown on commercial property funds to prevent a liquidity crisis if investors rush for the exit.
Commercial property has come under pressure from the steep interest rate rises of the past year, which have increased the cost of financing and depressed valuations. The recent banking crisis has also triggered investor concerns that banks might restrict lending to the sector to shore up their balance sheets.
Svitlana Gubriy, head of indirect real assets at Abrdn, said that “to rely exclusively on bank financing is for us a potential red flag”. She said real estate companies in the Nordic nations in particular rely on bank funding.
Earlier this year, BlackRock sought to rebalance its portfolio to free up cash, offloading property assets across sectors that had reached the end of their investment life cycle.
Tens of millions of pounds have been withdrawn from property funds in recent weeks and analysts said this trend was expected to continue.
According to the latest data from Morningstar Direct, European funds directly investing in property swung from inflows of nearly £300mn in January to outflows of £172mn in February. UK funds had £109mn of outflows in February, more than double the previous month.
Property investment had boomed in recent years as ultra-low interest rates and near-zero or negative returns on bonds left investors with few options for relatively stable long-term investments. As bond yields have risen, property has faced growing competition for cash.
“All the money that rotated in the past from public fixed income into real estate in the search for yield is now rotating back. It’s another factor in the drying up of liquidity,” said a senior global property investor.
New figures from Calastone, a fund data provider, show that UK investors pulled money from real estate funds for the eighth successive month in March, against a backdrop of rising interest rates.
“The most recent succession of rate rises over the last year, and fears over the resulting economic slowdown, continue to keep pressure on the sector . . . outflows are likely to continue,” said Edward Glyn, head of global markets at Calastone.