The IETF assessed the robustness of the SCPI liquidity model over a long period. The results are quite convincing. They can be explained in particular by the liquidity management tools available to management companies. But what exactly are these tools??
The SCPIs got through the health crisis without a hitch. At least in terms of liquidity. This is demonstrated by an analysis by Pierre Schoeffler, Senior Advisor at the IEIF, carried out at the request of the ASPIM (see the article “SCPI: what about their liquidity?”). To explain this resilience, he looked at the relative effectiveness of the liquidity management tools available to SCPI management companies.
First lever: good diversification of SCPI assets
The latter can, in the first place, intervene at the level of the asset SCPIs. ” Good diversification, sectoral and geographical, reduces the overall risk of the portfolios. And provides protection against a localized drying up of the liquidity of the underlying assets “recalls Pierre Schoeffler. The frequency at which assets are valued can also be a protective lever. This is true, in any case, for the French approach. Annual valuations, updated quarterly or half-yearly, with a methodology based on market value – and not usage or replacement – protect against excessive distortion between the value displayed and investor sentiment. ” Experience pro essays Pierre Schoeffler, that overly systematic or overly spaced out valuations are detrimental to liquidity”. By referring, of course, to Anglo-Saxon vehicles, followers of the mark-to-market…
SCPI liability management tools
SCPIs, but even more so OPCIs, can also count on a pocket of liquidity – more or less significant – which enables them to meet part of the redemption requests.
Side passive, the weapons are not lacking either. There is an increase in fundraising, of course. But who can’t decide? There is that of indebtedness, to boost the available cash necessary to deal with redemptions. Or asset disposals, which have the same objective. ” These two techniques, however, pose problems of dilution. In addition, asset disposals can be counterproductive, through their knock-on effect on the underlying markets warns Pierre Schoeffler. Another tool available is the ownership ratio, which will help diversify the sources of financing. Finally, SCPIs can play on the redemption conditions. In other words, make subscribers pay the price of liquidity.
Playing on the value of SCPI shares
The management company is indeed able, for example, to modify the price of SCPI shares. To adjust it to a value ” discounted of heritage. This practice, regularly implemented by SCPIs in recent years, has instead resulted in an increase in subscription prices. But it can also be used with the aim of dissuading subscribers from carrying out their transfer project. This time by lowering the value of the shares. The management company may also modify the level of entry or exit fees. This will also have a deterrent effect in terms of price. So on the assignments.
Directly limit the liquidity of the units
Finally, the SCPI manager can directly limit the liquidity of the units. Or by increasing the notice period. Or by capping redemptions. It even has an ultimate option: the suspension of redemptions. On SCPIs with variable capital, this decision is possible when the units awaiting sale, over a period of one year, represent at least 10% of the capitalization. This “nuclear weapon” has never been used by SCPI. But UCITS have already had the opportunity to implement it “says Pierre Schoeffler. This also recalls a practice whose terms are important: the frequency of valuation. ” A daily publication results in a sparse order book. A monthly publication ensures a better comparison of offers. And therefore a better balance with demand “, he assures.
Should the liquidity management tools be upgraded?
Here again, the comparison between the Anglo-Saxon model, where valuations are daily, and the French model, which is more conservative, pleads in favor of the latter. No SCPI, in 2020, closed its doors due to a liquidity crisis. Conversely, several English real estate funds, although reputed to be more liquid, disappeared last year…
The balance sheet of French unlisted real estate funds is therefore, in terms of liquidity, generally very positive. But shouldn’t we nevertheless have to take into account the evolutions of the market – in particular the size of the vehicles, much more imposing than during the last regulatory reform – to change certain rules or practices of SCPIs? Pierre Schoeffler, and several managers of management companies, have several proposals in this area. To be continued…