UBS locks in Triton investors as redemption queue grows

Investors in balanced UK property fund accept longer redemption deferral period, following manager’s departure and loss of value in £765m vehicle

UBS Global Asset Management has introduced  a two-year lock-up period on redemptions in its flagship Triton UK balanced fund because of queues of investors wishing to leave.

The £765m Triton fund has been hit by the departure of fund manager Justin Brown, who was appointed in 2010 to turn round the fund’s fortunes. Brown left in September and has joined BlackRock’s rapidly expanding European real estate team.

UBS hired Brown after most of its long-standing senior UK property fund management team left the business in 2009, including the then managing director of UK real estate Richard Tanner and Triton’s fund manager, Paul Dennis-Jones.

Triton’s net asset value had fallen to £765m this September from more than £2bn five years ago. Unit holders voted to increase the maximum redemptions deferral period to 24 month after UBS argued that it was in investors’ best interests. It is understood UBS felt it had to defer the redemption period to give it time to sell property to meet redemptions via the normal strategic sales process.

The global firm appointed Howard Meaney as portfolio manager for Triton in October, reporting to Anthony Shayle. Meaney is overseeing sales to meet existing redemptions but also trying to persuade investors to withdraw their redemptions, in an attempt to reduce the redemption queue.

Another UK balanced fund that has also faced challenges, RREEF’s former flagship core fund, which operated as the UK Retail, Office and Industrial Property Funds, is to be merged with BlackRock’s UK Property Fund.

However, market sources stressed that redemption queues had only formed for UK balanced funds with specific fund-level rather than asset issues and that this is not a repetition of 2007-2008, when investors piled out of the asset class.

Then, many open-ended funds were forced to close for long periods, angering investors and re-opening the debate about property’s suitability for open-ended investment. Although the RREEF fund has traded at a 20% discount to net asset value in recent weeks, other balanced funds have been trading close to NAV.

Dennis-Jones, who is chairman of the Association of Real Estate Funds, said on behalf of AREF: “We do not sense that there is a move away from balanced funds. There are one or two funds in the market that have particular issues.”

AREF will be providing guidance to fund members, he added, about “what investors should expect when dealing with redemptions and when closed-ended funds come to the end  of their life, which is also an issue. Both need to happen in an orderly way.” AREF is taking soundings from its investor committee.

BlackRock’s head of international property Marcus Sperber said this week that absorbing RREEF’s funds into BlackRock UK Property  Fund will add an additional 64 investors and 27 investments worth £335m, to create a £2.4bn fund. This would have “the scale to invest in quality assets for over 400 institutional clients that might not be available to other funds”.