The insurance and pensions giant suspended the affected funds last Thursday (December 5) after the M&G Property Portfolio was gated, as the £164m Prudential M&G Property Portfolio is fully invested in M&G’s fund.
Prudential’s UK property portfolio is only sold through Prudential and typically makes up part of a client’s balanced portfolio of assets, the firm stated.
A spokesperson from Prudential said: “We have been lowering UK property exposure broadly across the range since the beginning of 2019.
“We had a change of strategic approach early in 2019 where we reduced our charges as well as changing the fund's objectives. This required us to sell property to ensure the fund was in line with the client's expectations.”
The spokesperson said economic and political uncertainty, alongside the “cloud hanging over traditional retail”, was also behind the decision to reduce exposure to all forms of property investment.
The move means the portfolio's 19,700 customers are unable to withdraw their money, make further investments or any switches out of or into property.
Prudential stated it would be writing to advisers and clients to explain why the firm had taken this action and how it affected their investments.
The suspension does not impact PruFund Growth, PruFund Cautious, the Risk Managed PruFund or the firm’s passive range.
Adrian Lowcock, head of personal investing at Willis Owen, warned: “This suspension could send shockwaves through the sector and have a domino effect on the remainder of the funds.
“There is over £15bn invested in direct property funds available to individual investors, but so far only one group is affected. However, this is a sector which cannot cope with large withdrawals in a short space of time, and contagion risk is very real.
“It is yet another reason for investors to very closely consider what investment vehicles they use to access property – for most it simply shouldn’t be in open-ended vehicles.”
The £2.5bn M&G Property Portfolio was suspended last week (December 4) as the fund attempted to deal with an “unusually high and sustained” period of outflows during political uncertainty and ongoing “structural shifts” in the UK retail sector.
This mirrored what happed three years ago, after the EU Referendum.
In July 2016 the fund house closed 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.
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.
imogen.tew@ft.com
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