Aegon Asset Management plans to close its Aegon Property Income Fund and Property Income Feeder Funds due to continuing pandemic uncertainty.

The funds were suspended in March 2020 as the pandemic took hold due to “material uncertainty” over valuations in the UK property market. 

Since that point the funds have remained suspended while the company has worked behind the scenes to raise liquidity to meet anticipated investor redemption demands. 

The company said it hoped that the suspension would be lifted in Q2 2021 however it has proven “increasingly challenging” to raise sufficient liquidity to reopen the funds while ensuring that investors have a well-balanced portfolio. 

Because of the problems Aegon says it will now take steps to close the funds and return the proceeds to investors “as quickly as possible.”

The closure follow Aviva closing its property fund and continuing suspension and liquidity problems for property funds over the past few years, including before the pandemic. The FCA is looking to change property fund rules to give managers more time to handle high levels of redemptions over a short period.

Aegon points out that following the Brexit referendum, the Aegon Property Income Fund was one of the few authorised property funds to remain open. 

Ryan Hughes, head of active portfolios at AJ Bell, said: “Hot on the heels of Aviva closing their Property fund, we have now Aegon announcing the same. 

“Given the fund size had fallen to under £400m and would be expected to fall further upon any reopening, it was likely that the fund wouldn’t be viable in the long run and therefore it looks as if Aegon have made the sensible decision to wind up the fund. 

“The challenge Aegon now has, like Aviva, is that the market knows they are a forced seller and this may make it difficult to sell down the underlying properties at the right price. As we have seen with the Woodford fund closure, getting the balance right between time and price is extremely difficult and sensitive and therefore the clear communication of this is key.”

Oli Creasey, property research analyst at Quilter Cheviot, said: “The decision by Aegon to close its property fund doesn’t come as a surprise. The fund was considered to be at risk earlier this year, a view that hardened following the news in May that a similar fund at Aviva was taking this same course of action. 

“The fund has been struggling for some time with one year returns particularly disappointing, especially when considering that a considerable percentage of assets were held as cash throughout this period. The broader UK property market returned c.6% over the same period, while the average property fund returned -1.6%, so significant underperformance will also have contributed to this decision. 

“The silver lining for investors is that the closure accelerates the return of some cash with most of the 32% cash weighting available to pay out.

“For the property fund sector as a whole, this is likely to mark the last of the closures, for now. The larger property funds are at much less risk of permanent closure, while the only other fund of similar size is run by BMO, which has seen better performance and as a result expects investors to continue to reward it with patience. With regulatory changes pending and an uncertain outlook for commercial real estate, however, times are only going to get tougher for property funds.”