Everyone knows that liquidity can be a problem with property funds, especially commercial property funds.Â Actually, let me revise that statement:Â absolutely no-one knows that liquidity can be a problem with property funds, whether commercial or otherwise.Â No, let’s have a third attempt:Â many people inside the industry know that liquidity can be a problem with any kind of property fund, but hardly anyone outside the industry has the faintest idea or, indeed, has a clue what “liquidity” means.
That’s why it’s so incredibly damaging when you get items on the main national news – as we did this morning – saying that another major fund manager has now stopped accepting instructions to sell units in its commercial property fund for the time being in order to tackle its liquidity problems – and there was speculation in the bulletin that other firms may be about to do the same thing.
I’m sure it’s the right thing to do in the interests of all unitholders – those who want to sell, and those who don’t.Â And I’m certain that it’ll say in the funds’ KFDs that the managers have the authority to do this when necessary.Â But all the same, as an advertisement for the commercial property sector, for funds generally and for financial services as a whole, it’s still another disaster.Â Once again, it says we’re a bunch of crooks and shysters whoÂ can never be relied upon to keep our promises and do what we said we’d do.Â Bad enough that investors in these funds are losing money hand over fist:Â even worse that we’re now resorting to something no-one had ever noticedÂ in the small print to preventÂ investors from getting their money out when they want it.
Yes, yes, I know it isn’t really like that, it just sounds like that on the news.Â But as the saying goes, perception is reality, and the perception sucks.
Talking of which, I’m not sure if it’s perception or reality or both, but it seems to me that New Star were spending a ton of money on advertising their commercial property fund (“DIVERSIFY! into commercial property“) until awfullyÂ recently.Â Were Mr Duffield and his colleagues a little slowÂ to see the writing on the (office-block) wall?