M&G Investments has announced it will close its £565mn property fund, blaming a drop in interest from investors.
The investment house said its decision was in the "best interests of all investors" in the face of declining interest in open-ended daily dealing property strategies.
M&G has suspended dealing in shared and is writing to clients about next steps.
Neal Brooks, M&G’s global head of product and distribution, said: “When we launched this strategy in 2005, we – alongside our peers – provided access to an asset class which had historically been unavailable to long term savers in a pooled structure.
"The market has since evolved. Declining retail investor interest across the sector for this fund structure, alongside uncertainty around their future composition is posing challenges to the future viability of funds like the M&G Property Portfolio – particularly for those investors who require daily liquidity.
"We considered various options, but believe this is the right decision for our investors.”
Subject to regulatory approval, the funds assets will go on sale. M&G expects will take around 18 months for the majority of the portfolio to be sold and money is set to be returned to clients when cash becomes available.
Fund groups are helping the FCA massively by closing their physical property fundsBen Yearsley, Fairview ConsultingThe annual charge will be cut by 30 per cent as of today and fees on cash in the fund removed entirely.
Back in 2021, Aegon and Aviva both closed their property funds amid valuation and liquidity concerns.
In June, two global regulators released a number of recommendations around redemptions from open-ended property funds after waves of withdrawals prompted a number of funds gating which included investors being hit with redemption fees, or swing pricing.
However, a review by the FCA in July did not include property funds.
Ben Yearsley of Fairview Consulting said it was time for the FCA to make a decision on the funds, as more end up closing.
He said: "Fund groups are helping the FCA massively by closing their physical property funds - it saves the FCA having to actually make a decision on them. M&G is the latest helpful company. The FCA clearly doesn't want them but due to platform intransigence they can't really turn them into notice period funds."
While Oli Creasey, equity research analyst at Quilter Cheviot, said a fund with less than £1bn under management makes it hard to get a diversified portfolio.
This was something acknowledged by M&G which said the fund's shrinking size has affected its ability to build a diverse portfolio without incurring high and ongoing transaction costs.
Creasey said: "While it is unexpected, it isn’t a massive surprise to see the M&G fund call time and begin liquidating.
"In the past we’ve argued that a fund below c. £1bn of AUM may struggle to be sustainable, as the lack of scale makes it hard to put together a diversified portfolio of property assets. And while the fund does not appear to have had liquidity issues this time around, the fund has struggled in the past, suspending in December 2019.
"This combined with a general lack of interest in the sector from investors, plus the overhanging threat of FCA regulation, has driven management to throw in the towel.
“It’s a shame to see another long-standing property fund exit the sector, but it may not be the last. Only a handful of funds remain, and while they tend to be the biggest/best, even they have seen shrinking AUM as property values fell in the second half of 2022, and net redemptions reduced portfolio sizes further."
tara.o'connor@ft.com
What's your view?
Have your say in the comments section below or email us: ftadviser.newsdesk@ft.com.
