UBS reportedly racing to curb outflows at landmark real estate fund

Real Estate

Renovations include new floor tiles and a switch from brass accents to stainless steel at the CambridgeSide mall in Cambridge, MA on Jun. 13, 2017.

Lane Turner | The Boston Globe | Getty Images

UBS is reportedly racing to stanch outflows at its landmark $20 billion real-estate fund amid worries about its retail holdings and extended underperformance.

Investors are standing by to withdraw some $7 billion from the UBS Trumbull Property Fund as a growing number move away from more cautious funds, a person familiar with the matter told the Wall Street Journal.

Hoping to stem the flow, UBS has reportedly offered to cut costs for investors willing to stay in the fund and to forego management fees for new investments, the Journal added citing an analyst presentation to the City of Cambridge, Massachusetts.

The Swiss bank’s Trumbull fund owns real estate in Cambridge, including the CambridgeSide mall as well as properties across the country in New York, Chicago, Los Angeles and San Francisco.

UBS did not immediately respond to CNBC’s request for comment.

An isolated uptick in redemption requests can lead to a host of issues for investment funds like Trumbull if other investors grow nervous the peer withdrawals and, as a result, choose to join the exodus.

If real estate fund managers don’t have enough cash on hand to meet a small number of redemption requests, they may be forced to initiate the sale of properties. The sale of such illiquid assets can take time and add to investor angst in the meanwhile, placing even more pressure on the manager to sell property.

But in contrast to riskier private-equity funds, which dictate when investors are allowed to extract money and include early-exit penalties, the majority of big core funds aren’t as strict about how often or how much its clients are allowed to redeem.

And while Trumbull isn’t the only big-bank property fund seeing outflows, its underperformance versus industry benchmarks has hastened the investor flight. It had performed worse than the NCREIF NFI-ODCE index on a 1-year, 3-year and 5-year basis as of a 2018 presentation to the City of Naples, Florida, Police and Fire Pension Plans.

Read the original Wall Street Journal report here.

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