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Making property fund investments work

By Raymond Mulligan

Question: Some of my investments are held in a property fund. Until recently I was unable to withdraw these due to the fund being frozen. I can now withdraw my money, what would you advise?

Answerr: Many investors like yourself have been restricted as to what they can do with monies that have been tied up in property funds.

These monies have generally been held either within pension plans or investment bonds.

Over the years such investments have proved popular with advisors and investors, as they gave high levels of return with very little volatility.

We all know however, that the current global recession brought all of that to an abrupt halt.

These funds were run by large life offices and investment companies and effectively pooled investors’ monies to enable the fund manager to purchase a variety of commercial properties such as office blocks, retail units and warehouses.

Ordinarily there was more money being invested into these funds than there were people cashing their investments in, so the fund managers were able to hold the property investments over the longer term.

However, the credit crunch brought about a very different picture.

People became nervous and as a result started to cash in or withdraw their investments.

For the first time the amount of monies being withdrawn from funds was in excess of the inflows and indeed in excess of the amount of cash that these funds typically had.

In this scenario, the fund manager has only one option, and that is to sell some properties within the fund in order to provide sufficient cash to meet the needs of those cashing their investments in.

In order to try and secure the best price for the property, if indeed it can be sold, fund managers need time in order to find the best buyer.

This is why many funds had a six months or even 12 months wait for those wanting to withdraw their funds.

By the sound of your question, you have now reached the end of that waiting period.

What you do now is really dependent on your circumstances and where the money is held.

Recently there have been signs that perhaps we are nearing the bottom of the commercial property cycle, however other commentators feel there is still some way to go before we reach the bottom.

So to remain invested in a property fund may mean you see your investment fall still further and it may be some time before confidence returns and you start to see some growth again.

So while you have a window of opportunity to get out of the fund, now may be an opportune time to consider what else you can do.

One option is to switch your property investment and look to see what other investments are available within your current plan.

This would mean that in effect you do not encash the plan, but simply reallocate the investments within it.

In doing so you should seek to spread the monies, where possible, around a number of different asset classes.

If you can’t switch the other alternative is to consider encashing or transferring the plan.

In doing so, you need to be clear of any penalties or costs involved, as well as any tax complications.

As ever, you should seek out some advice before acting to ensure that someone is there to guide you through the best course of action for you.

This will ensure that the advice given is the most appropriate to your individual needs and circumstances.

Raymond Mulligan is managing director of Johnston Campbell, a company of independent financial advisers regulated by the Financial Services Authority. For further information, please contact raymondm@johnston or telephone (028) 9022 1010

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