Mansion Student Accommodation Fund
You may have seen the title “£300m student accommodation fund suspended” pop up in the headlines last Thursday morning. This seems to be another case of a UCIS holding illiquid property assets and not having the cash resources available to meet redemption requests.
So what is the current situation?
Mansion have been very open with the issue and have taken swift action to try and rectify the problems with the fund. On Wednesday 23rd October they released a statement on the Channel Islands Stock Exchange (CISX) and through their UK distributor Dartmoor Capital Management Limited, along with a key facts document for investors.
The suspension was effective from and including the Dealing Day of 1st October 2013. The main reason for the suspension of the fund is that “continuing net redemptions…….have exhausted the cash reserves more quickly than they can be replenished”. The fund usually holds around 10% of its net asset value in cash, but over the last couple of months this has fallen dramatically due to increased redemption requests. The fund is now unable to meet current redemptions “without the immediate sale of an asset or a refinancing”. They have stated that “In the opinion of the Board of Directors, such an immediate sale would not be in the long-term interests of Shareholders”. The Fund Manager does not want to sell off assets quickly as they would have to sell them for less than their true worth, which would lower returns in the long-term.
The Board of Directors have therefore decided to suspend dealing in the fund until liquidity can be improved. “An orderly way to restore liquidity would most likely include the sale of some of the assets, over a reasonable time period” so that the true and fair value of those assets can be realised.
My colleague Daniel Kiernan spoke about property funds and liquidity in short video recently (you can access the video here). The liquidity strategy used by Mansion was to keep cash reserves of around 10% of its net asset value. But they have stated that “due to quite a sudden change in market sentiment caused by other funds in the sector” (The Brandeaux funds which we have also spoken about recently) there has been an increase in redemption requests and the fund hasn’t had the capital available to honour them.“
So it looks like investors will have to be patient and wait for some underlying assets to be sold in order to create liquidity for the fund. But this is another example of investors not understanding the liquidity of holding certain assets. This doesn’t automatically make it a bad investment, but as we’ve previously noted, property is extremely illiquid and investors should be aware of this from the outset. Liquidity will always be an issue for property funds, whether they are UCIS or not.
Finally, in no sense does there seem to be anything wrong with the management or regulation surrounding the fund. Although the fund is classed as a UCIS it is in fact authorised by the Guernsey Financial Services Commission and listed on the Channel Islands Stock Exchange, which is considered by the FCA to be an equal jurisdiction to the UK. The fund is also advised, promoted and distributed by Dartmoor Capital Management Limited who are an FCA regulated investment adviser.