Aviva Investors is to close its suspended £400m Aviva Investors UK Property Fund after a run of poor performance and uncertainty over its liquidity should investors seek to redeem investments en masse.

Aviva Investors wrote to investors this week to tell them of the decision.

The move follows the recent lifting of suspensions for many UK property funds but comes as the FCA has made clear in recent months that it is reviewing the liquidity of property funds.

In a statement Aviva Investors said: “We have informed our investors that we will be closing the Aviva Investors UK Property Fund. Since dealing in the Fund was suspended in March 2020, it has become increasingly challenging to generate positive returns whilst also providing the necessary liquidity to re-open the Fund.  

“The asset sales required to provide ongoing liquidity would compromise the portfolio by limiting our ability to maintain diversification and deliver the fund’s stated performance objectives over the long term. We have therefore decided it is in the best interests of investors to close the fund and return cash to them in a fair and orderly manner. We remain firmly committed to real estate and are actively looking at new propositions to address our clients’ appetite for the asset class and real assets more broadly in the evolving market environment.”

Ryan Hughes, head of active portfolios at AJ Bell, said the decision to close the fund completely came as something of a surprise given that most suspensions in the property fund sector have now been lifted.

He said: “News that Aviva has taken the decision to wind up its Property fund may come as a surprise to some investors given just about all of the sector has now reopened but the Aviva fund was in a weaker position than others given its relatively small size at under £400m and very low number of underlying properties. 

“Any move to reposition the fund to raise liquidity was always likely to make the fund unviable should a number of underlying investors want to redeem as it was highly likely and therefore it seems prudent for Aviva to decide to wind up the fund. 

“Looking ahead, while other funds have managed to reopen, there remains a question mark over the future of property funds given the FCAs review into the sector, its liquidity and the future shape of the long term assets funds. There is hope that some clarity will come later in the year and investors will need this to have any kind of confidence in the funds they hold and the structures they operate in.”

Dealing in the Aviva Investors UK Property Fund, the Aviva Investors UK Property Feeder Inc Fund and the Aviva Investors UK Property Feeder Acc Fund was suspended in March 2020 due to “material uncertainty” over the valuation of property within the portfolio brought about by the Covid-19 pandemic, Aviva told investors.

Aviva said during the pandemic it became increasingly challenging to generate positive returns while also providing the necessary liquidity to re-open the funds. 

The funds will continue to be suspended and with effect from 19 July 2021 will be terminated with cash returned to investors.

Aviva Investors says despite the decision it remains “fully committed” to UK real estate.