# SCHRÖDINGER’S QUARTERLY VALUATION *The Art of Illiquidity* Author: Elveander Welfendorff · Category: Value · Date: 2026-11-09 · Place: Warsaw · EW Journal Source: https://ewbyew.com/schrodingers-quarterly-valuation/ --- On 8 August 1935 Albert Einstein sent Erwin Schrödinger a letter about gunpowder. He asked his correspondent to imagine a charge that was unstable by nature and about as likely as not to explode within a year. Quantum mechanics, Einstein observed, would describe such a charge as a blend of exploded and unexploded states, and in reality, he wrote, there is just no intermediary between exploded and not exploded. Nature has to choose, and so does the physicist. A year is a long time to sit beside a charge of that kind. The quarrel had begun in May, when Einstein, with Boris Podolsky and Nathan Rosen, published a paper in the Physical Review arguing that quantum mechanics could not be the complete story. Schrödinger replied on 19 August with an improvement. He put a Geiger counter and a speck of uranium into a steel chamber, so little uranium that over one hour a decay was as likely as none, and connected the counter to a relay that would smash a bottle of prussic acid. Then he added the cat. After the hour, he wrote, quantum mechanics would describe the living and the dead cat as smeared out in equal measure. Einstein answered on 4 September that the cat showed they were in complete agreement. Print came later that year, in an essay in Die Naturwissenschaften called “The Present Situation in Quantum Mechanics,” which also gave physics the word entanglement. The editor, Arnold Berliner, had run the journal since its first number in 1913 and was dismissed in the Germany of 1935 within days of receiving the draft. Schrödinger thought of withdrawing the essay in protest, and Berliner himself, dismissed after twenty-two years in the chair, urged him to let it appear. In the paper he wrote that “One can even set up quite ridiculous cases,” and then set one up: “A cat is penned up in a steel chamber, along with the following diabolical device (which must be secured against direct interference by the cat).” I am fond of that parenthesis. The cat had been built as an insult, an argument carried to the point where it embarrasses its author, and Schrödinger offered it to colleagues as a jibe at the theory. The joke escaped him. Textbooks, mugs and several generations of undergraduates now treat the animal as an ornament of the theory it was meant to sink, and physicists still disagree about what happens when somebody looks. I confess that I prefer the mug to the theory. Nobody has yet been able to put the question to the cat. Owners of property live in the same box. A building has an estimated price until somebody tries to sell it. Between sales, the figure on the statement comes from a valuer, who goes down a short list like a man counting spoons: the lease, the tenant, the neighbourhood and the few similar buildings that have changed hands lately. Then he writes down an opinion. The opinion is careful and professional. It is also, in the strict sense, a report on a cat that has not been looked at. A sale of commercial property can take three to six months, and longer when the market is unwilling. For a pension scheme that holds a tower for twenty years, this causes few difficulties. It becomes a difficulty when the building sits inside a fund that promises investors their money back on any dealing day, which is how Britain’s retail property funds were built. Standard Life Investments shut its UK real estate fund at noon on 4 July 2016, eleven days after the vote to leave the European Union. The fund was then worth about 2.9 billion pounds. The next day M&G stopped redemptions in its property portfolio, worth 4.4 billion, and Aviva Investors followed with a trust of 1.8 billion. Together the three held about 9.1 billion pounds of other people’s money, in holdings that ranged from an office building in Birmingham to a shopping centre in Newcastle and retail warehouses in Northampton. Before the vote M&G had kept 7.7 per cent of its fund in cash, and the cushion proved too thin. Aviva explained the position in a sentence that could serve as a motto for the whole industry: it takes time to sell property. The sentence holds for every building ever built. Valuations moved as soon as the first fund shut. Legal & General cut the value of its 2.3 billion pound fund by 5 per cent and then by a further 10 per cent as of 6 July, about 15 per cent in all. Aberdeen priced exits at a 17 per cent discount and paused dealing from midday on 6 July to midday on 7 July. Its chief executive, Martin Gilbert, said that sellers who needed cash were marketing buildings at discounts to their recent valuations. The buildings themselves had not moved. The valuation was one number and the asking price of a seller in a hurry was another, and the second arrived only when somebody wanted to leave. By 7 July seven large funds had suspended or marked down, among them Henderson, Columbia Threadneedle and Canada Life, which made for a crowded doorway. Andrew Bailey of the Financial Conduct Authority said that the suspensions were no “panic measure” and that the regulator “may need to look at the design” of property funds. Most reopened within weeks, and the episode was filed in the history of Brexit under inconvenience. M&G suspended again in December 2019, and in March 2020 most of the sector followed. The first lockdowns had emptied shops and offices, and almost nothing was changing hands. Valuers are paid to produce a number, and in the third week of March professionals who had produced numbers for decades wrote that they could not stand behind one. The independent valuer of the Janus Henderson fund declared a material uncertainty of valuations in the UK property market. Kames said that the turmoil made it difficult to provide a true value of the fund’s underlying assets. The professional term is material valuation uncertainty, a warning in the valuer’s report that the figure should be treated with caution. It was an honest letter, and it may be the nearest thing finance has to a physicist admitting that the box is closed. Kames Capital suspended its Property Income fund on Monday 16 March, though 17.7 per cent of its portfolio sat in cash. Janus Henderson, Aviva Investors and Aberdeen Standard Investments followed, and Columbia Threadneedle on the afternoon of Wednesday the 18th. By one count more than ten billion pounds of assets were frozen within the week. The buildings, tenants and leases of 18 March were those of 15 March. The ability to say what a stranger would pay had gone, and a fund that sells units at a price it cannot support has little choice but to stop selling them. Afterwards the rules changed, and a property fund must now suspend dealing when the valuer reports material uncertainty over at least a fifth of its portfolio. The valuer’s modesty has become a mandatory lid, and a rulebook that makes the admission of ignorance automatic spares the manager from deciding alone when to close the door. A building bought for its rent needs no daily verdict, and illiquidity has a case to make for itself: the owner is spared the nervous jostle of a screen, and in the long run may do better for sitting still. Trouble came from the wrapper, a daily-dealing vehicle around an asset that takes months to sell, and from the habit of reading a smooth line on a quarterly statement as evidence of calm, as though a quiet cat were a healthy one. A line that is smooth has, so far, been asked nothing. Whether it can answer depends on how many investors ask on the same day, which no valuer is able to put in the report. Those two men never settled their quarrel, and Einstein went on believing that the quantum theory was unfinished. On the cat they had agreed from the first, since neither believed that an animal could be dead and alive at once. The managers of 2016 and 2020 held the same opinion about their funds, and found it out on the first day that anyone looked. * * * --- © 2026 Elveander Welfendorff. Quotation with attribution and a link to the source is welcome.