M&G has suspended dealings in the M&G Property Portfolio and M&G Feeder of Property Portfolio on 4 December 2019 and offered to waive 30% of its fees in recognition of locking investors out of their assets.
The asset manager cited “unusually high outflows” due to continued Brexit-related uncertainty and “ongoing structural shifts in the UK retail sector” as rasons for the suspension. It continued: “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.”
Responding to the closure, Ryan Hughes, head of active portfolios at investment platform AJ Bell, commented: “M&G’s decision to suspend the fund comes at a time when there is heightened concern about liquidity in funds, with investors understandably jittery after Woodford’s fund closure. However, it’s not the first time we’ve seen property funds suspend, with the sector seeing mass closures after the EU referendum in 2016.
“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% 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 FCA released its final rules on property funds last month, meaning we’re more likely to see fund suspension when valuations are uncertain, but it shied away from actually banning these illiquid assets being held in daily dealing funds. Bearing in mind the fundamental mismatch between the underlying assets and liquidity offered to investors, that looks to be a mistake, particularly given the fact that this type of fund has now suspended twice in less than four years.
“M&G has also clearly learnt from the Woodford closure and hopes to deflect attention by waiving 30% of its fee from the outset. How exactly it landed on that 30% figure is unclear, but this is an olive branch to investors who will understandably be frustrated at their money being locked-up.
“The UK property sector has been out of favour with investors, seeing outflows every month for the past year, with investors withdrawing £1.6bn of money during that time. However, it’s important to put this in context, as the three months around the referendum saw £2.3bn of outflows alone.”
