The M&G property portfolio fund, and its feeder fund, will be open for dealing on May 10, more than 17 months since the fund closed for redemptions in December 2019 amid a flurry of withdrawals.
The fund’s authorised corporate director and its depositary are now satisfied the fund has enough liquidity to meet any redemption requests.
Laurence Mumford, chairman of the fund’s ACD, M&G Securities, said: “We deeply regret the inconvenience that suspension has caused our customers and clients.
"The decision to suspend was taken to protect the interests of all of our investors, enabling the fund manager to sell assets in an orderly fashion. We believe this has preserved value for customers, while also maintaining the integrity and future prospects of the fund.”
The fund’s cash pile now stands at 33.2 per cent, significantly higher than the normal weighting of around 20 per cent.
The fund offloaded 38 properties at a combined -0.1 per cent discount to net asset value, which has reduced the portfolio’s exposure to retail from 38.4 per cent to 28.1 per cent and pushed it overweight to industrials.
The portfolio now has assets under management of £2.7bn across 54 properties. Since its suspension, it has sold £703m in assets, and currently has £253m of assets exchanged or under offer.
M&G had waived 30per cent of the fund's annual charge during suspension until the fund reopens. It will also continue to waive the fee on cash held above 20 per cent until the end of 2021.
Ryan Hughes, head of active portfolios at AJ Bell, said the news would be welcomed by the many investors who have been unable to access their money for such a long period.
“With the fund at around £2bn, many investors have been stuck in limbo for too long as many of the underlying properties were sold to raise liquidity to reach this point,” he said.
“While M&G have announced they won’t charge their annual management charge on cash above 20 per cent until the end of the year, it will resume after that point.
"It still seems an anomaly that property funds deem it suitable to charge the full annual management fee when 20 per cent of the fund will simply be held in cash."
He added: "While this reopening is welcome, we shouldn’t forget that the outcome of the FCAs consultation into the appropriateness of property in an open ended structure is still outstanding."
The majority of property funds gated for redemptions last year to avoid a forced fire-sale of assets as the economic uncertainty caused investors to withdraw their cash in droves.
The Financial Conduct Authority (FCA) is currently consulting on proposals to fix the liquidity mis-match that has plagued open-ended property funds for a number of years.
A number of property fund managers have raised concerns over the regulator’s proposal to introduce longer notice periods for redemptions, claiming this could reduce consumer choice and create problems for other parts of the market.
Investment analysts have commented that longer notice periods would cause investors to pivot to real estate investment trusts which are seen as more aligned with the illiquid nature of property.
Hughes added: “The consultation closed in November 2020 but as yet no findings and rule changes have been announced, although the key element of the consultation was the potential need to give up to 90 days’ notice to redeem your investment.
"This will have major implications for investors should this change be confirmed but ultimately would likely stop the huge liquidity mismatch risk that got not just M&G but the whole open ended property sector into this mess in the first place.”
Moira O’Neill, head of personal finance at Interactive Investor, said: “Whatever the outcome of the review, investors who have been stung by property fund suspensions could be forgiven for avoiding open ended property funds in the future on the basis of ‘Fool me once, shame on you. Fool me twice, shame on me’.
"There’s no guarantee that the FCA’s proposals will solve the issue entirely so we would suggest investors keep an open mind and consider alternatives."
M&G has also announced it will make several changes to the funds, including the pricing methodology which will change to dual pricing on a full spread basis from June 25.
In a statement, the firm says this will provide “greater dealing clarity, reduce the potential for large price fluctuations and provide stronger alignment with the fund’s long term horizon”. The measures also include allowing the actual property exposure to fall to 60 per cent in exceptional circumstances.
sally.hickey@ft.com
