"A pretty rich charge at any point in the cycle, let alone where yields are at present."
He added: "I struggle to understand how fund management groups have been able to achieve this from both a regulatory level, and more importantly, a morale one."
The Financial Conduct Authority (FCA) has previously expressed concern about the suitability of the open-ended fund structure for investing in property.
In its consultation paper on investing in illiquid assets in October 2018, the regulator highlighted that holding a large quantity of cash can hurt investors as it is not earning the same return.
The cash in the funds will be earning interest and this is passed onto the client as part of the returns of the fund. Some funds hold "cash like instruments" such as 10-year UK government bonds, which can be sold so quickly they are almost the same as cash.
The yield on the 10-year UK government bond is currently 0.82 per cent, meaning that some property fund investors may be earning a return of 0.07 per cent on the cash, after paying the standard management fee of 0.75 per cent for the privilege. By comparison the average return in the sector was 30 per cent over the 5 years to July 18.
Jim Harrison, director of Master Adviser, an advice firm in London, said property funds that charge clients for cash holdings were "not acting fairly".
He added he would never put clients into such funds in the first place due to the liquidity issue and would put them in investment trusts instead, which allow clients to trade the shares rather than the underlying investment.
Minesh Patel, an adviser at EA Financial Solutions in London, also said the charges were unfair. He said: "The charging policy is a reflection of the way fund management groups focus on their interests rather than the investor. I do not think it is fair."
But Philip Milton, founder of advice firm PJ Milton and Co, sided with the providers. He said: "They don’t really charge [the management fee] on cash. They charge it on the fund – which happens to hold cash.
"What might be a better consideration is ‘are these the best ways of holding these assets?' The simple answer, to be frank, is ‘no’.
"Otherwise tough, you buy a fund, you pay a management fee for the manager’s judgement on how he invests and upon what he subscribes the capital – including cash and allowing for his concerns over suspensions.