M&G Investments has temporarily suspended dealing in the M&G Property Portfolio and its feeder fund following a period of “unusually high and sustained outflows”.
This is the second time the fund has been suspended in the recent past, having being one of the property funds that was closed when the Brexit referendum of 2016 sparked a surge in outflows.
In a letter to investors, the firm said: “In recent months, continued Brexit-related uncertainty and ongoing structural shifts in the UK retail sector have prompted unusually high outflows from our property fund for retail investors.
“Given that these circumstances and deteriorating market conditions have significantly impacted our ability to sell commercial property, we have temporarily suspended dealing in the interests of protecting our customers.
“The assets owned by the M&G Property Portfolio, such as office buildings and shopping centres, are held for the long term and take time to buy and sell, making it difficult to immediately meet sudden and sustained levels of redemptions.
“Suspending the funds at this time will allow the fund managers, Fiona Rowley and Justin Upton, time to restore the cash levels by selling assets in an orderly manner and preserve value for our investors.”
M&G Property Portfolio had assets under management of £2.5bn at the end of October. This is down from around £3.5bn at the start of the year and FE fundinfo data suggests it has been hit with outflows in nine of the past 10 months.
Ryan Hughes, head of active portfolios at AJ Bell, said: “Property is an inherently illiquid asset, potentially taking months to sell, and so when faced with large outflows the fund manager has to juggle selling off assets and maintaining cash levels.
“The M&G Property Portfolio only had 5 per cent in cash at the end of October, presumably after seeing sizeable outflows. This suspension will give the managers time to sell off assets in order to meet those redemptions.”
The portfolio will be actively managed during its suspension but M&G Investments will waive 30 per cent of its annual charge to reflect the “very frustrating” situation for its investors.
Adrian Lowcock, head of personal investing at Willis Owen, said: “In recent years a number of property funds have suspended redemptions, and since the Brexit vote in 2016 there has been an ongoing concern that investors could find themselves trapped in them.
“The asset class managed to avoid the situation in the run up to both the 31 March and 31 October deadlines but it looks like their luck has now run out. Whilst this is disappointing for investors who need to access their money, the situation needs to be held in context.
“Selling property takes time and the asset class is not as liquid as shares and bonds. Because any sale of property involves disposal of a reasonably large and specific asset it is not always easy to find a buyer quickly.
“M&G have announced they are waiving 30 per cent of their fee, which considering the nature of this asset, I believe is appropriate. It reflects the inconvenience that closing the fund has on investors whilst recognising the fact that the fund is still carrying out the management of the portfolio.”
The suspension will be formally reviewed on a monthly basis and investors will continue to receive income payments, fund reporting and updates throughout.
Performance of fund vs sector in 2019
Source: FE Analytics
During 2019 (to 3 December), M&G Property Portfolio has made a 7.55 per cent loss compared with a 0.21 per cent total return for the average IA UK Direct Property peer. The fund has a yield of 3.81 per cent and an ongoing charges figure (OCF) of 0.79 per cent.