Aviva Investors will shutter its suspended UK property fund this summer over concerns about liquidity and the value of the portfolio.
The asset manager suspended the fund in March last year after the outbreak of Covid-19 sparked uncertainty over its valuation.
In a statement today Aviva said it had become “increasingly challenging to generate positive returns whilst also providing the necessary liquidity to re-open the funds”.
“As such we have concluded that it would now be in investors’ interests to wind-up the Funds and return cash to investors in a fair and orderly manner,” it said.
The fund will remain suspended until 19 July, when it will be placed into termination.
Aviva said a value assessment of the fund completed at the end of January determined that a strategic review should be carried out to ensure investors’ long-term interests could be served.
The review, combined with forecast redemption levels once the fund reopened, concluded that its ability to benefit from economies of scale and the diversification of investments would soon be limited.
Aviva added that size was particularly important for property funds due to the high costs of acquiring, managing and disposing of properties.
Despite the decision, the firm said it remained fully committed to UK real estate, saying it was a core part of its overall simplification plan.
Ryan Hughes, head of active portfolios at AJ Bell, said the move “may come as a surprise to some investors given just about all of the sector has now reopened”, but added that the Aviva fund was “in a weaker position than others given its relatively small size at under £400m and very low number of underlying properties”.
“Any move to reposition the fund to raise liquidity was always likely to make the fund unviable should a number of underlying investors want to redeem as was highly likely and therefore it seems prudent for Aviva to decide to wind up the fund.”
It comes as the Financial Conduct Authority looks at ways to reform the structure of illiquid funds following a string of high-profile suspensions.
The watchdog is set to consult on a new long-term asset fund with longer redemption periods and high levels of disclosure.