The UK purpose built student property sector has experienced yet more trouble with the HC Mansion Student Accommodation Income and Growth fund forced to suspend redemptions after suffering liquidity problems. The £45 million UK-domiciled fund shares a name and management company with the Guernsey listed Mansion Student Accommodation Fund which suspended redemptions in October last year, though the managing company Host Capital has no connection to the Guernsey fund. HC Mansion was launched only 18 months ago as one of the UK’s first regulated open-ended Property Authorised Investment Funds (PAIFs).
Reasons for Suspension
Christopher Finch, the manager of the fund, spoke to FTAdviser stating that the rise in redemptions has been caused by many IFAs having clients invested in both the HC Mansion Fund and the Guernsey Mansion fund, and due to the suspension on the Guernsey fund they have looked to create liquidity by redeeming from the HC Mansion fund.
Finch went on the say that since the fund is young at only 18 months old and the recent run on redemptions from a very small group of IFA supporters has brought down their liquidity. The fund aims to hold cash reserves of up to 25% which are used primarily to ensure redemptions are met. In an attempt to manage the fund’s liquidity they have chosen to suspend redemptions, which in extreme circumstances can be deferred for up to 6 months. In order to create liquidity the fund will need to find new investors during this period, or look to sell underlying properties, which will take 8-16 weeks to complete. It is unknown how long it will be until the fund resumes normal trading. It should be noted that the fund has a 5 year investment horizon, and therefore is a medium-term illiquid investment.
Sector Troubles
There have been some notable problems in the sector over the last year. Brandeaux, who operate a number of open-ended UCIS schemes, suspended redemptions on a number of their property funds last July citing liquidity problems. Brandeaux are planning an IPO on the London Stock Exchange to raise liquidity for the Dublin based Student Accommodation fund and announced in January that they will wind up six of their property funds to release liquidity to meet redemption requests.
The £282 million Guernsey-based Mansion Student Accommodationfund (also a UCIS) also suspended redemptions in October last year.
Both funds claimed that the underlying assets were performing well, but that uncertainty around the student accommodation market and the FSA ban on the sale and marketing of unregulated collective investment schemes to retail investors had led to a large increase in redemption requests, which neither fund could meet through short-term cash reserves.
Finch seemed to agree, telling FTAdviser, “When you look at the underlying asset class it couldn’t be performing any better if it tried. There were materially different reasons why clients were redeeming back in 2008/09, the asset classes were under a great deal of pressure with the credit squeeze, but today it’s performing very well, so the only event I can see which has triggered redemptions in the offshore market is to do with the regulation and promotion in the UK.”
The HC Mansion fund has been performing well, having total returns of 7.13% since its launch and fully occupied property assets and plans in place for more property acquisitions. It will be interesting to see if this proactive measure will protect against a longer-term suspension of redemptions as has been seen with other funds in the sector.