Friends Provident yesterday became the first fund manager in the current downturn to stop private investors withdrawing cash from a property fund.
More than 118,000 investors in its £1.2bn pension and life-linked property fund have been told that they will have to wait up to six months if they want to redeem their cash.
The move is a sign of how decreased returns have led to the 'man on the street' turning against property, with redemptions having increased sharply in most private investor funds since the summer.
Fund managers in the sector such as New Star have commented on how bad news causes redemption levels to rise, so the actions taken by Friends Provident will spark fears that other funds will soon have to follow suit.
Friends Provident said that redemptions from the fund had increased in recent months and it had imposed a ban so it would not have to conduct a fire sale of assets.
‘Given that it can take several months for the sale of a property to complete, it is normal for companies offering property funds to have the option of introducing a notice period on redemptions to allow the fund manager to sell properties on the best terms for the future benefit of all investors in the funds,’ it said.
‘The alternative would be to attempt to sell these properties quickly, which would result in a lower sale price being obtained.
'This would have then an adverse effect on the value and liquidity of the funds and would place those policyholders who choose to remain invested in the funds - a clear majority - at a disadvantage to those who are wishing to switch or withdraw.’
Friends Provident said it would honour all redemption requests made before midnight Wednesday.