Independent Articles
What to do about lock-in of property fund that accounts for 20pc of pension plan?
Jun
Source: Independant.ie
Query:
I am in my 50s. I have a personal pension plan in which I have invested in several property funds. Those property funds have taken a battering recently and so I tried to switch out of them, only to be told by my pension provider that the fund is suspended and it is not possible to switch out of it while the suspension is in place. What should I do? About a fifth of my pension fund is in these suspended property funds. Niall, Co Meath
Answer:
Property portfolio funds with an exposure to Irish commercial property have been successful in recent years.
For the long-term investor, which fits your profile as a pension investor, these funds are cyclical. This asset class will form part of your portfolio and it is important to focus more on when you expect to draw down the funds rather than the specific fluctuations in performance.
An investment weighting of 20pc is reasonable in this asset class and in general, over a long investment period, an annualised return of around 4pc is the targeted return.
You mention that the fund is suspended. I would speculate that this means that a notice period is required before access to your money is granted. This is to protect the current investors while maintaining the integrity of the property valuations. It is normal after such a strong growth cycle for such a notice period to come into play.
As mentioned, maintaining this asset class over the long term at this level is a reasonable investment. However, to ensure the specific funds you are invested in meet with your expectations, there are four questions you should clarify with the fund managers.
First: Is the fund leveraged? This can have an impact on when properties may need to be sold and it would be preferable if no leverage is in place.
Second: What is the breakdown on the properties held and the tenancies in place. This will give you an indication as to how likely the property is to maintain its capital value – and how much rental income is likely to be earned from the property.
Third: If there is a retail exposure, could it be difficult to collect rent?
Fourth: As a result of Covid-19, there is a real possibility the nature of work will change: will the demand for expensive office space continue as a requirement into the future? It is worth clarifying any innovations the managers of the fund foresee to counter this risk.
