The managers of the suspended M&G Property Portfolio raised £137m as they scrambled to boost the fund's cash levels.
In an update to investors, published yesterday (January 2), the fund house announced it would continue the fund's suspension until further notice in the interests of "protecting the fund's investors".
M&G stated the "immediate priority" was to raise cash levels in a "controlled manner", adding that since the end of November the fund's managers had completed on £70.4m of assets and that a further £67.2m was either under offer or in solicitors’ hands.
The fund will re-open once cash levels have been sufficiently restored, the asset manager said.
The M&G Property Portfolio was suspended at the start of December after an "unusually high and sustained" period of outflows.
Estimates from Morningstar showed investors had pulled about £900m from the £2.5bn fund in the first 10 months of 2019, averaging £22.5m a week.
At the time M&G said political uncertainty and ongoing "structural shifts" in the UK retail sector had made it difficult to sell commercial property and therefore to meet the requested redemptions.
In the aftermath the Financial Conduct Authority promised action "within weeks" and later issued a joint report with the Bank of England which floated proposals to curb the "mismatch" between redeptmion terms and funds' liquidity.
Such solutions included a shift in the way the liquidity of funds were assessed to reflect the price discount needed for a quick sale of a representative sample of the fund (including liquid and illiquid parts) or the time period needed for a sale to avoid a material price discount.
The regulators also suggested investors who pulled their cash should receive a price for their assets which reflected the discount needed to sell the required portion in the specified time period. For example investors who asked for their assets within 24 hours would receive a lower price for their units compared with investors who gave a longer notice period.
This is the second time M&G's property fund has been suspended. In July 2016 the fund house briefly closed the fund due to redemptions which it blamed on the Brexit referendum.
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.
Many property funds maintain a significant cash buffer to deal with day-to-day liquidity. But the M&G property fund held just 5 per cent in cash as at November 30, a position that has halved since July.
The fund is the second worst performer in the IA UK Direct Property sector over the past three years, returning 2.93 per cent compared with 12.3 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 net asset value in November in light of the retail property sector’s struggles.
Since the suspension, insurance and pensions giant Prudential was forced to suspend trading in its UK property fund as the £164m portfolio is fully invested in M&G's fund.
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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