Redemption freezing counters irrationality: ADPIA

Linden Toll

As the number of property funds freezing redemptions continues to rise, investors are being reminded that it is the best way a fund manager can preserve value within the fund.

The Australian Direct Property Investment Association (ADPIA) has issued a statement describing the decision to stop outflows from property funds as “not only prudent but also conservative, considered and responsible funds management”.

“ADPIA contends that these managers are in fact exercising their rights as prudent and responsible managers to protect underlying unit holder value from irrational decision making,” ADPIA president Linden Toll said.

He explained that by limiting redemptions, fund managers were better able to manage the downside caused by panic selling during periods of market volatility.

Toll also highlighted the advantages of illiquidity for property investors, saying that by controlling the realisation of an asset in a structured and co-ordinated manner, as opposed to a quick fire sale driven by sentiment, value can be preserved and risk reduced.

“As fund managers, this is our fiduciary duty to clients and, interestingly, research indicates that having a portion of illiquid assets over time is extremely beneficial to portfolio performance.”

According to PIR Independent Research Group, there are currently 18 types of property funds, including unlisted property funds, mortgage funds, property securities funds and hybrid property funds, which have frozen investor redemptions.

Collectively, these funds had total assets of $9.7 billion and in excess of 51,000 investors as at December 31, 2007.