Canada Life has altered the pricing on its property funds by 10 per cent. This follows similar moves by Friends First, Irish Life and Hibernian last week - a reaction to negative sentiment in the commercial property sector.
Following a review of the inflow and outflows in its property funds, Canada Life decided to apply bid pricing to all withdrawals from September 3rd. This will reduce any encashment value by 10 per cent.
In a statement, Canada Life said it regarded the decision as a prudent approach, taken in the best interest of the majority of customers, who will remain in the fund. Setanta Asset Management manages the funds of Canada Life.
New Ireland is now the only property fund with majority Irish holdings which has not applied restrictions to its investors. A company spokesman said nothing had changed from its point of view and that its position was being kept under review.
Friends First altered its pricing by 12 per cent last week while Irish Life's adjustment was 7 per cent. Irish Life also imposed a six-month withdrawal embargo on investors who entered the fund after September 1998. Hibernian put an 8 per cent price adjustment in place.
The value of the underlying investment in Canada Life's funds, worth more than £100 million (€127 million), has not fallen. The bid price applies to would-be exiters from the fund. An investor wishing to withdraw units worth £100,000 will receive £90,000 when the bid price is applied.
Canada Life will keep the situation under review. It has fallen into line with the other funds in the market because it had to, a company spokesman said.
"The inflow was beginning to balance with the outflow but we are not at the stage of selling buildings in the fund," he said.
If there is not enough cash in a given fund to meet the redemption of units, the fund will be forced to sell assets. Property is by nature difficult to deal in and out of quickly and there are very high transaction costs. When the level of redemptions increases, the fund manager can use the pricing mechanism to stem the flow from the fund in order to protect the remaining investors. Commenting on the move by Canada Life, Setanta said it was a reflection of supply catching up with the demand in the commercial property sector. He said Setanta was still pretty positive on commercial property markets for the medium to long term.
Standard Life's fund moved out of Irish property 18 months ago and moved almost exclusively to UK property. Therefore it will not be introducing any withdrawal restrictions on its fund.
A spokesman for Standard Life said it had warned against too high a weighting in Irish property for some time.
"Once sentiment turns against the asset class and investors want to get out, that causes difficulties in a small market," he said.
