Financial news

The mini-budget led to a slump in sterling and an emergency £65bn bond-buying programme from the Bank of England.

Outflows of £184m were driven by a sharp increase in outright sell orders for property funds, rather than a buyer’s strike, according to Calastone.

Sell orders jumped 42% during the month, although outflows tailed off after Liz Truss announced her resignation as prime minister on 20 October — dropping from an average of £12m during the month she was in office to £3m after her departure.

“The mini-budget at the end of September prompted a surge in market expectations for UK interest rates far beyond what had been discounted before Liz Truss and Kwasi Kwarteng revealed their big deficit plans,” said Edward Glyn, head of global markets at Calastone.

READ L&G, Abrdn reassure over property funds after Columbia Threadneedle suspension

“The commercial property market is very sensitive to rising interest rates – they not only hit profit margins by impacting funding costs, but they also cool the economy. The likelihood of a sharper and longer recession is bad for tenant demand and rent arrears and this hit sentiment too.”

The spike in outflows came as some asset managers imposed restrictions on their UK property funds.

Columbia Threadneedle said on 11 October it had suspended dealing in its £453m UK Property Authorised Investment fund as well as its feeder, the UK Property Authorised trust following an increase in redemption requests from investors.

The suspension came days after Columbia Threadneedle announced withdrawals from its £2.3bn Pensions Pooled Property fund would move from daily to monthly “due to liquidity constraints resulting from the recent market volatility and a subsequent increase in redemption requests”.

BlackRock and Schroders also imposed limits on the amount institutional investors can withdraw from some of their UK property funds, as a growing number of pension clients looked to cash in their holdings in less-liquid assets such as real estate.

The Calastone figures show wider equity fund outflows slowed to £422m last month, down from the £1.9bn and £2.3bn recorded during August and September respectively. Despite a reduction in outflows, October still registered as one of the top 10 worst months on record for the category.

Calastone said improved global market conditions helped reduce overall selling activity in UK-focused funds during the month, with outflows slowing to £424m.

However, it was Truss’s departure from Downing Street that proved to be key to stemming outflows.

In the six days before Truss announced her resignation, investors pulled a net £238m from UK-focused equity funds, according to Calastone.

In the three days following her departure, which included the installation of Rishi Sunak as prime minister, UK equity funds posted modest inflows of £2.5m.

To contact the author of this story with feedback or news, email David Ricketts