Bank of England threatens to shut down commercial trusts

As the rate of withdrawals spiked after the Brexit vote, the Bank of England (BoE) has warned of the serious possibility that commercial property funds may be suspended.

Several documents show that the Financial Conduct Authority (FCA) informed the BoE about the swelling outflows from commercial property trusts, and that those funds could soon be stopped.

The documents, released by the Bank of England, show meeting with policymakers on the 28 June and 1 July regarding the outflows from funds investing in commercial property.

These funds offer instant access to cash but as they are invested into property such as commercial offices and warehouses, their underlying assets are hard to turn quickly to liquid cash. The attempt to make a secure boring asset readily tradable as if a share in a major PLC is admirable but inherently problematic, especially when the commercial property world runs the roller coaster ride it has during the Global Financial Crisis and seemingly again post Brexit referendum outcome.  Since 4 July, seven funds have taken steps to either stop withdrawals by suspending trading completely (as a listed company may with its shares at a time of intense turbulence or threat) or reducing the fund’s value. Aberdeen Asset Management is reported to have dropped the value of its fund by 17 per cent – the biggest confirmed fall so far.

“The FPC (Financial Policy Committee) was briefed by the FCA on the extent of outflows from these funds and on the possibility that funds could suspend redemptions in the near term”, read the record of the meetings on 28 June and 1 July.

Bank of England governor Mark Carney, who also chairs the FPC, is ready to pump billions of pounds into the British economy following the uncertainties of the referendum vote.

At Carter Lemon Camerons LLP, our Commercial teams are experienced in all aspects of commercial transactions, be they property or share/ unit/ stock deals. We draft, negotiate and interpret a wide variety of commercial property transactions and also commercial contracts, including agreements for the supply and purchase of goods and services, outsourcing arrangements, agency and distribution agreements, franchise agreements and tender responses. For more information about our services, please contact Rufus Ballaster or Andrew Firman or telephone: 020 7406 1000.