Property funds set for boost from Brexit sterling fall, says Henderson
29th July 2016
Commercial property funds could end up benefitting from Britain's exit from the European Union, as foreign buyers take advantage of the weak pound to snap up British assets, according the asset manager Henderson.
The group runs one of the biggest property funds in the UK and had to suspend withdrawals from it when investors fled in the wake of the Brexit vote.
The fund is still suspended to give it time to sell off a swathe of properties to finance those withdrawals.
A number of property funds have been suspended since the referendum, over fears that commercial property prices could crash amid a flurry of fire sales.
But chief executive Andrew Formica said the market is actually showing signs of strength.
“To seek fire sale prices just to get some liquidity doesn’t feel right. We’ve started to transact on a number of properties and a number of others are close to transacting, and they are pretty much in line with the net asset value at the time of Brexit,” he said.
“That may sound surprising – clearly one of the reasons clients wanted to get out is they thought prices would fall – but because of the fall in sterling it has become a much more attractive market for non-sterling based buyers. They’ve just had a 10 to 15pc windfall.
"Sterling has acted as quite a good moderator for market behaviour - I suspect that when these funds do reopen they will be broadly in line and we may even find that property prices have moved up from the pre-Brexit levels."
Mr Formica had urged voters to remain in the EU, but believes the Government has taken the right steps since the leave vote to promote confidence.
“I wished the UK had remained in , so I am quite saddened by the result, but as with anything that is thrown at you, you should always try to turn it into an opportunity,” the chief said.
“I look at the City of London as the global hub for financial services, and that means global, not just Europe, so I want to make sure we preserve the strength of the UK and the City in financial services globally.
“I’m quite please with they way [the government] has sought to strike deals with China, America, Canada, Australia, and broaden that global appeal as well as negotiating with Europe.”
He was speaking as Henderson reported a 14pc fall in underlying profits to £100.5m in the first half of the year.
Its assets under management increased by 3pc to £95bn, driven by currency movements and market improvements.
Those increases outweighed the £2bn of net outflows as investors pulled their money out around the time of the Brexit vote.
In the week of the vote, investors pulled out £300m, rising to £500m in the week after the referendum and £400m the following week. Investors are currently withdrawing less than £100m per week.
Henderson’s shares climbed 3.8pc on the results to £2.31 – but they are still down from £2.67 on the day of the referendum.
Meanwhile fund manager Schroders also reported a 2.7pc fall in profits to £282.3m, which sent its shares down 1.2pc.
Despite the referendum result, it has seen continued inflows from investors amounting to £1bn of net new money, with institutional investors in particular showing confidence.
“Everyone had raised cash before the vote and it has to be put to work in an era of very low interest rates,” said chief executive Peter Harrison.
“The FTSE 250 is back to where it was [before the vote], and people now think this is a much more long-term, slow-burn issue, and the immediate knee-jerk reaction was just that.”
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