St James’s Place to sell £2bn of commercial property

Britain’s biggest wealth manager St James’s Place is in effect abandoning commercial property as an asset class after deciding to wind down three funds with £1.84 billion invested in office blocks, shopping centres and other real estate.
The company, which manages investments for one million people in the UK, said the decision was taken after what it called “a challenging period for the sector as a whole”.
Like many asset managers, SJP has been hit by the so-called liquidity mismatch problem — reluctant to sell large, hard-to-divide property assets at what it thinks of as fire sale prices to raise the cash to meet redemption requests.
The funds affected are the Property Unit Trust, which holds £789.4 million of real estate assets, the Property Pension Fund, with £622.8 million, and the Property Life Fund, with £428.4 million.
They will be wound down in an orderly manner over time, with the underlying properties sold and the cash proceeds handed back to clients. The process would probably take two years, SJP said.
More than 117,000 clients are currently stranded in the unit trust. The pension and life funds have another 80,000 client accounts.
SJP had “no current plans” to find new ways for clients to invest in commercial property, a spokesman said, though they would have the option to use a discretionary fund management service.
Withdrawals from the unit trust were first frozen in October 2023 in the face of a wave of redemption requests, while customers wanting to pull money from the pension and life funds were subjected to deferrals. This was “to avoid having to sell properties below their fair market value”, SJP said.
The decision by such a major investment group — it runs £184 billion of assets — will be seen as a blow to the commercial property sector, which has been hit in recent years by the twin headwinds of the online shopping boom and the working-from-home trend. Other institutions to shut down open-ended property funds include Aviva, M&G and the Lloyds Bank-owned Scottish Widows.
Uncertainty about possible new rules designed by the Financial Conduct Authority for funds investing in illiquid assets — partly spurred on by the Woodford debacle — has also introduced fresh uncertainty for the sector.
“Proposed regulatory changes may result in the introduction of notice periods for funds holding assets that can take time to sell, such as property, and these changes could deter investors from investing in open ended property funds further,” SJP said.
Another loser will be Orchard Street, the specialist real estate fund manager which managed the funds. Responsibility for winding them down has been handed to Invesco.
Laith Khalaf, head of investment analysis at A J Bell, said, “The idea of using property for diversification and income isn’t dead, but the liquidity mismatch which led to widespread trading suspensions has mortally wounded the open-ended property fund sector.
“Lacklustre returns and the FCA’s proposal to introduce mandatory notice periods have also prompted investors to vote with their feet. Over the last ten years the IA UK Direct Property sector has mustered a return of just 2.3 per cent per annum.”
Shares in SJP were untroubled after the announcement, closing at up 2.2 per cent at 875½p. They have more than doubled since a low point last April caused by worries the company would be seriously hit by the new consumer duty requirements on all financial firms. SJP is expected to regain its place in the FTSE 100 next month.
Clients will continue to be charged fees while the funds are wound down. SJP cut the management charge for the unit trust by 0.15 percentage points to 2.2 per cent when it was suspended.
The company creates and markets a series of exclusive funds sold by self-employed financial advisers using the SJP franchise.
Tom Beal, group investment director at SJP, said: “Since we launched our property funds in 2004, the marketplace and our investment processes have evolved substantially, with the pandemic significantly impacting the wider property market.
“Following the suspension of the fund in October 2023, we have reviewed all options available to us and concluded that the best course of action is to wind down the funds. Doing so over a period of time will allow us to maximise value for our clients.”