TIME Investments has become the latest firm to suspend its property fund – TIME:Freehold, but for “very different reasons” from others which have recently closed.
In October, St James’s Place (SJP), M&G Investments and Canada Life all either closed or suspended an open-ended UK property fund each.
TIME Investments today announced the suspension of its fund after an independent valuer expressed “material uncertainty” regarding its residential property valuations.
The business said this was due to the government’s consultation ‘Modern leasehold: restricting ground rent for existing leases’ published on 9 November and the King’s Speech on 7 November, which announced the Leasehold and Freehold Bill.
As of today (13 November) at 9am the fund has been temporarily suspended with immediate effect.
The suspension has been agreed with the Depositary to the fund in accordance with the Financial Conduct Authority handbook.
TIME Investments said that without the Material Uncertainty Clause (MUC) being activated by the independent valuer, BNP Paribas, which is a result of the government’s announcement of the consultation, “the fund would have continued to accept dealing instructions and operate as normal”.
Quilter property research analyst Oliver Creasey said that BNP could not “confidently value the freehold assets given the regulatory landscape, and that as a result it would be unfair to investors to set a NAV for the fund at which units could be bought or sold (as that NAV could prove to be badly wrong).”
The consultation does not impact TIME Investments other property assets or property funds as it is only related to ground rent properties.
Creasey added: “The TIME fund invests predominantly in residential freehold properties (collecting ground rent from very long-dated ground leases), an area where regulatory changes have been a concern for some time.
“However, last week the government announced a formal consultation into how leasehold arrangements should be handled, which included the risk that all residential ground rents could be capped at a relatively low figure, or even permanently reduced to a nominal fee, such as a peppercorn.
“Several hundred years ago, the peppercorn was a valuable, rare spice, but the term has morphed over time to refer to a very small value amount, which almost always goes unpaid by the leaseholder.
“The MUC is a relatively new tool in the open-ended fund world, first used in anger across the property fund class in March 2020, when just about every property fund closed on the same day (as the onset of Covid made property valuation an impossible task at the time).
“It should be noted that the suspension is not a result of any action by the managers at TIME, who have maintained appropriate liquidity levels and delivered consistent returns over the past years.
“It may also be the case that the consultation concludes with a much less impactful outcome and the fund is able to reopen without suffering a significant hit to NAV.”