The M&G Property Portfolio has suspended trading for the second time in three years as the fund attempts to deal with an “unusually high and sustained” period of outflows.
The asset manager announced today (December 4) it would suspend dealings in both the fund itself and its feeder fund with immediate effect, saying political uncertainty and ongoing “structural shifts” in the UK retail sector had made it difficult to sell commercial property and therefore meet the requested redemptions.
Estimates from Morningstar show investors have pulled an estimated £900m from the fund in the first ten months of the year, averaging £22.5m per week in 2019. The portfolio has only had one month of positive flows since Britain voted to leave the EU in June 2016, according to the data provider.
M&G stated it had reached a point where it believed suspending the £2.5bn fund would best protect the interests of its customers.
The fund house said it would waive 30 per cent of its annual charge in recognition of customers being locked out of their investment. The portfolios will continue to be actively managed during the gating period and customers will continue to receive income payments.
The decision to suspend was made by M&G Securities Limited, the funds’ authorised corporate director, and the Financial Conduct Authority has been informed.
Previously, in July 2016, the fund house announced it would close the fund due to redemptions which it blamed on the Brexit vote.
It was one of a number of open-ended property funds to suspend dealing at the time, which prompted the industry to question the suitability of illiquid assets in open-ended funds. The fund reopened later that year.
The fund is the absolute worst performer in the IA UK Direct Property Sector in the past three years, returning 3.5 per cent compared with 13.5 per cent for the sector average, according to FE Analytics. Knight Frank, the independent valuer of M&G’s portfolio, made a 3.6 per cent downwards adjustment to its NAV last month in light of the retail property sector’s struggles.
Many property funds maintain a significant cash buffer to deal with day-to-day liquidity. But the M&G property fund holds just 5 per cent in cash, a position that has halved since July. The FCA said last month it hoped that its new proposals for illiquid assets would encourage managers to hold less cash.
Jason Hollands, director of communications at Tilney, said there was a risk M&G’s suspension could "inadvertently" trigger increased selling across the asset class from investors worried about being locked into other funds.
He said: "Property funds have seen significant withdrawals in recent months, which is unsurprising given ongoing political uncertainties from both Brexit and the potential for a new government with a radically different approach to tax and economic management.
"However, some of these worries may be alleviated next week when the general election results are known. If you are a long-term investor, there is no reason to panic sell out of UK property funds."
Issues surrounding illiquid holdings in open-ended funds have been highlighted on several occasions in 2019, most notably via the Neil Woodford saga.
Former-star fund manager Mr Woodford was forced to suspend his flagship Equity Income fund after redemptions ran at £9m per working day in May. The level of illiquid holdings in the portfolio meant he was unable to meet the requests.
Speaking at the Tisa Annual Conference yesterday (December 3), Martin Gilbert, founder of Aberdeen Asset Management, said the Woodford debacle had raised a bigger issue for the industry - one that highlighted the necessity of investors moving away from daily dealing portfolios if they wish to access illiquid asset classes.
imogen.tew@ft.com
What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.
