Home    M&G suspends £2.5bn fund on Brexit and retail woes

Fund manager M&G has halted trading in its £2.5bn property fund after fears over Brexit and a retail downturn prompted investors to rush to withdraw their money, echoing the crisis in the sector following the EU referendum.

The M&G Property Portfolio is the latest open-ended product to suspend withdrawals after the implosion of Neil Woodford’s company this year, and the first in the property sector since a series of funds were forced to “gate” following the 2016 Brexit vote.

M&G, a London-listed asset manager, said the pressure of investors demanding their money back had exceeded the speed at which it could sell properties, leading it to suspend any redemption requests made after midday on Wednesday.

“In recent months, unusually high and sustained outflows from the M&G Property Portfolio have coincided with a period where continued Brexit-related political uncertainty and ongoing structural shifts in the UK retail sector have made it difficult for us to sell commercial property,” it said.

“Given these circumstances, we have now reached a point where M&G believes it will best protect the interests of the funds’ customers by applying a temporary suspension in dealing.”

Wednesday, 4 December, 2019

Net outflows from the M&G fund, which is marketed to retail investors, soared this year, reaching £901m by the end of October, compared with £299m for all of 2018, according to Morningstar.

Investors pulled a net £2.1bn from real estate funds in the first 10 months of the year. Another fund to suffer heavily was the Aberdeen UK Property fund, which shed £542m.

Jason Hollands, managing director at the online investment service Bestinvest, said there was a risk of contagion.

“As we saw in 2016, when one fund acts, this can risk inadvertently triggering increased selling across the asset class from investors worried about being locked in to other funds,” he said.

“Property funds have seen significant withdrawals in recent months, which is unsurprising given ongoing political uncertainties from both Brexit and the potential for a new government.”

However, he added: “Some of these worries may be alleviated next week when the general election results are known. If you are a long-term investor, there is no reason to panic-sell out of UK property funds.”

Aberdeen Standard Investments on Wednesday highlighted its funds’ cash holdings: Aberdeen UK Property held 12.7 per cent in cash at the end of October and SLI UK Real Estate 15.7 per cent, it said. “The intention is to maintain this risk-off stance until we have greater clarity on the outlook for the UK economy,” a spokesperson added.

M&G’s fund held less than 5 per cent in cash at the end of October, the latest figure it has published.

In 2016, M&G’s fund was among those that halted trading after the referendum — some for several months — along with products from Aviva, Standard Life, Columbia Threadneedle, Henderson Global Investors and Canada Life. Aberdeen’s fund also suspended trading for a brief period.

Property funds marketed to retail investors allow daily trading but it can take months to sell properties, leaving a risk of running out of cash.

Mr Woodford faced a similar illiquidity problem before his company collapsed this year, thanks to large holdings of unlisted shares.

The Financial Conduct Authority, which regulates funds, indicated after the 2016 suspensions that it was happy with the “gating” process, which prevented large numbers of fire sales from triggering a downward spiral in property prices.

From 2020, the FCA will impose new rules that will force property funds to halt trading if there is uncertainty about the value of 20 per cent or more of their assets. However the regulator has stopped short of banning daily traded funds from investing in illiquid assets such as property.

Ryan Hughes, head of active portfolios at investment platform AJ Bell, said: “Bearing in mind the fundamental mismatch between the underlying assets and liquidity offered to investors, that looks to be a mistake . . . To tell an investor that they can’t get their money back when they want it is a very hard message to get across.”

As well as Brexit worries, M&G’s fund has suffered from large holdings in retail property, a sector hit over the past two years by retailer failures and value drops.

The fund holds about 40 per cent of its portfolio in retail property, according to its latest fact sheet. The valuations of those retail holdings were cut by 7.7 per cent last month.

The suspension will be monitored daily and reviewed every 28 days, M&G said. It will waive 30 per cent of its annual charge until the fund resumes dealing.

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