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Redemptions halted in Norwich Union property fund

In what many believe will be a trend for 2009, Norwich Union has today halted redemptions of units in its property fund. A wave of pessimistic news reports and media comment would appear to have spooked many investors and the company has halted redemptions in the short to medium term. This means that over 225,000 investors in the Norwich union property fund, which has assets of £2.9 billion, will be unable to liquidate their investments for six months.

A report from IPD has shown that UK commercial property values have fallen by over 35% since the peak of April 2007. A continuation of this trend together with suggestions that the UK banking sector has literally hundreds of billions of pounds of liabilities in the commercial property sector would seem to have been the breaking point for Norwich union.

It is highly likely that other insurance companies and unit trust companies will look to reduce the chances of a "run" on their property funds and take the same action as that announced by Norwich union today. The problem with a wave of redemptions in property funds is the fact that the majority of the assets cannot be liquidated in a short space of time and many would need to be sold at distressed prices to cover redemptions.

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