United Kingdom property funds reassure investors after M&G suspension

Andrew Cummings
December 7, 2019

One of many UK's greatest property funds, which owns purchasing centres throughout the nation, has alarmed traders by banning withdrawals and blaming each Brexit and the retail downturn for its issues.

M&G Investments announced on Wednesday it was suspending dealing on its Property Portfolio and feeder fund thanks to "unusually high and sustained" outflows.

"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".

M&G said the suspension would be monitored daily and formally reviewed every 28 days.

The FCA confirmed a number of measures, including requirements that open-ended funds that invest in illiquid assets must suspend dealing when "there is material uncertainty regarding the value" of more than 20% of assets.

This will allow assets to be sold over time, rather than as a fire sale, in order to meet investors' withdrawal demands.

"Even though M&G are waiving part of the management fee during the suspension period, we can't be far away from the regulator stepping in regarding issues in this space".

"As we saw in 2016, when one fund acts, this can risk inadvertently triggering increased selling across the asset class from investors anxious about being locked into other funds".

The fund has shrunk by £1.1bn so far this year.

Hollands thought political uncertainty surrounding the general election could be compounding the problem but said that could be resolved by next Friday depending on the general election result.

The case raised questions regarding the oversight of funds which invest in assets that take a long time to sell, but from which investors can withdraw their money from at any time.

"Property is a long-term investment and we urge investors not to panic", said Patrick Connolly of financial advisers Chase de Vere. "All property funds are managed differently and we continue to monitor client and market sentiment with a view to ensuring good customer outcomes".

The suspension of the fund is highly embarrassing for the M&G group, one of the world's largest property investors with £33.5bn invested on behalf of small investors and pension funds alike.

The fund firm also said ongoing structural shifts in Britain's retail sector had made it hard for it to sell some of its largest assets.

The monetary adviser Chase de Vere informed traders to not panic, however added: "M&G has struggled with this as a outcome of variety of traders cashing out and a comparatively excessive publicity to retail properties, that are proving tough to promote".

Absolute return funds were hammered even harder than United Kingdom property funds during October, racking up net outflows of £566m, making it the worst selling asset class that month.

"Property still remains an asset class which can play an important role in investment portfolios and, when we have some real clarity on Brexit, the prospects for this asset class will hopefully improve".

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