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"These types of direct property funds — where the fund itself owns the building or property outright — represent a small piece of the mutual fund world. Yet th

by aab0 10y ago

"These types of direct property funds — where the fund itself owns the building or property outright — represent a small piece of the mutual fund world. Yet they have accounted for a growing share of investment in commercial real estate in Britain in recent years. According to a recent Bank of England report, these funds have about $46 billion in assets under management, representing 7 percent of investment in the British market." http://www.nytimes.com/2016/07/07/business/dealbook/3-more-property-funds-halt-withdrawals-after-brexit-vote.html http://www.nytimes.com/2016/07/07/business/dealbook/3-more-p... the linked article. So it seems this is maybe 3 percent of the overall British mutual fund market, and a fairly exotic part.

TheOtherHobbes 10y ago
Where "exotic" = "high risk". These funds are far less liquid than most, because they're structured to offer a small amount of floating capital to cover normal withdrawals, and a much larger pool of highly illiquid capital trapped in high-value commercial properties which can take months or years to sell. So these are among the riskiest of all funds. They're a very niche interest for experienced investors. Historically they've offered much higher returns than the market average, but clearly that's over now. The situation isn't quite analogous to a bank run, because these funds are very peripheral and not structural. But a bank run isn't impossible. The UK desperately needs a renegotiated trade agreement with the EU to clarify the UK's position - and that's not going to happen any time soon. As one US investor said, no one in their right mind is going to go anywhere near the British economy until this is settled.
- eru 10y ago
  Hmm, it seems like a closed (and perhaps exchanged traded) fund holding the same assets would be superior to this kind of property fund? If you want out, someone else has to take the property off you. Might as well do that via the exchanges, instead of letting some fund managers do it. Or what am I missing?
  - Ntrails 10y ago
    Superior in what sense? When you invest in a fund with liquidity constraints you get paid in higher returns (an "illiquidity premium"). This was known by investors going in. ETFs don't just magically make everything liquid without costs
    - eru 10y ago
      Exactly. The ETFs just make the liquidity issues public on the market. For the fund, you'd be paying some managers to buy and sell stuff whenever enough people/money leaves or enters the fund.
- spoonie 10y ago
  They're a very niche interest for experienced investors. Experienced investors who are crowding for the doors based on the ups & downs of the market? Sounds pretty amateur to me.

by aab0 10y ago

TheOtherHobbes 10y ago

Where "exotic" = "high risk". These funds are far less liquid than most, because they're structured to offer a small amount of floating capital to cover normal withdrawals, and a much larger pool of highly illiquid capital trapped in high-value commercial properties which can take months or years to sell. So these are among the riskiest of all funds. They're a very niche interest for experienced investors. Historically they've offered much higher returns than the market average, but clearly that's over now. The situation isn't quite analogous to a bank run, because these funds are very peripheral and not structural. But a bank run isn't impossible. The UK desperately needs a renegotiated trade agreement with the EU to clarify the UK's position - and that's not going to happen any time soon. As one US investor said, no one in their right mind is going to go anywhere near the British economy until this is settled.

eru 10y ago
Hmm, it seems like a closed (and perhaps exchanged traded) fund holding the same assets would be superior to this kind of property fund? If you want out, someone else has to take the property off you. Might as well do that via the exchanges, instead of letting some fund managers do it. Or what am I missing?
- Ntrails 10y ago
  Superior in what sense? When you invest in a fund with liquidity constraints you get paid in higher returns (an "illiquidity premium"). This was known by investors going in. ETFs don't just magically make everything liquid without costs
  - eru 10y ago
    Exactly. The ETFs just make the liquidity issues public on the market. For the fund, you'd be paying some managers to buy and sell stuff whenever enough people/money leaves or enters the fund.
spoonie 10y ago
They're a very niche interest for experienced investors. Experienced investors who are crowding for the doors based on the ups & downs of the market? Sounds pretty amateur to me.