Property Fund Exit Update

In recent months, economic uncertainty arising from the Covid-19 virus has increased the level of withdrawals from Property funds and created some market uncertainly around property valuations.

Therefore, in order to protect the interests of long-term investors in the Funds Irish Life introduced a six-month notice period in March for member exits from the Property Fund.

As we are all aware Covid-19 has introduced significant market volatility and the property market is not immune to this. In light of this our independent valuers have expressed concern around the certainty of property valuations at this time.

Safeguarding the interests of all investors

In order to protect the interests of all long-term investors in the Property Fund we have now triggered a separate protection in the form of a queuing process on scheme exits or scheme investment reorganisation requests, where the property fund is impacted.

What Funds are impacted?

The following property funds are included in this process:

Exempt Property Fund
Irish Property Fund
Setanta Property Fund
Canada Life Property Fund

As is the underlying property portion of any multi-asset fund the schemes is invested in (such as the Empower Funds or Consensus Funds say).

How does the queue process work for scheme exits?

Where we are notified of a scheme exit we will determine the level of property investment in the scheme. There is immediate liquidity where the scheme property exposure totals less than €250K. (note this threshold is subject to review and can be removed in more stressed market conditions).
Where the property exposure exceeds €250K, exits from the property fund will be facilitated at a rate of €250K every 6 months or 1/6th of the investor’s entire holding every 6 months. So the maximum period of delay will be 3 years for very large amounts.
The first payment is made at the end of the 6 month period commencing from the date of receipt of the instruction.
There is no delay applied to demographic scheme outflows (e.g. a scheme wind up following a recent company wind-up).
The scheme property holding will be transferred from Corporate Business to an investment only policy with Irish Life Investment Managers who will manage the queueing process.
The transferring scheme trustees will be required to complete the necessary paper work to give effect to the new Investment Only policy.
The non-property assets will be transferred to the new Registered Administrator with a breakdown of the asset splits by member.

Example:

Fund of €10m is moving to another provider and has property assets as follows:

Property Fund : €250,000

MAPS4 Fund: Property portion : €250,000

EMPOWER Growth: Property Portion : €250,000

Consensus Fund: Property Portion : €250,000

Total property held in scheme €1,000,000

Balance of Fund (non-property) €9,000,000

€10,000,000

The payment of benefits will be as follows:

€9m paid to new investment manager at date of exit (i.e. value of non-property assets)
€1m Property Assets will be queued to be transferred in phases over a maximum of 3 years
Calculation of phasing is as follows:
- Greater of €250k every 6 months or 1/6^th of the Property Holdings
  - In this case, that would be €250k
€1m will be transferred to an Investment Policy with ILIM
- Phasing out from ILIM would be €250k every 6 months in this case
- Will be fully paid by ILIM to new provider over 2 years (i.e. €250k x 4 6-monthly amounts)

How does the queue process work Scheme investment reorganisation/switches?

Where a scheme trustee is looking to reorganise the scheme investment portfolio and that reorganisation would result in a dilution of the schemes property exposure, a phasing of the changes will be agreed with Irish Life Corporate Business and Irish Life Investment Managers. Please consult your Corporate Business contact to discuss.

Why delay exits from property?

This decision was taken by the company on the advice of the Head of Actuarial Function in light of our responsibility to ensure the fair treatment of all our Clients. The implementation of a queue system for schemes who wish to exit their property investments reflects the illiquid nature of property and does not reflect any fundamental change in our view as to the long-term suitability of property as an asset class or the quality of properties within our Fund.

What does this mean for property as an investment?

Our view remains that property continues to represent a good long-term asset class for investment. Historically property has provided strong returns in excess of inflation over the long-term, and there is no reason to believe this will not be attainable in the future.