Published: Sat, December 07, 2019
Markets | By Otis Pena

Giant property fund suspends dealing

Giant property fund suspends dealing

The M&G Property Portfolio is a broadly diversified fund which invests in 91 United Kingdom commercial properties across retail, industrial and office sectors on behalf of United Kingdom retail investors.

M&G admitted it had been unable to promote business property quick sufficient to fund the frenzy for the door by traders, leaving it with no alternative however to stop additional withdrawals.

The £2.5bn M&G Property Portfolio was suspended after "unusually excessive and sustained outflows" - demand from traders for his or her a refund - prompted by "Brexit-related political uncertainty and ongoing structural shifts within the United Kingdom retail sector".

At the end of 2018 and heading into 2019, property funds were switching pricing mechanisms and building up cash levels as redemptions from the UK Direct Property sector hit £315.6m in December.

"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", the manager said.

It has waived 30% of its annual charge to investors, as they were unable to access their money, although some have called for action from the regulator on such charges.

The same fund was suspended in July 2016 for four months following the UK's European Union referendum when money flooded out of such funds.

Investors will be updated via the website with a formal review taking place every 28 days and the situation monitored daily.

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It is said that this decision was taken into account with opinions from Prince Charles and Prince William . Royal expert Penny Junor revealed that Prince Charles was heartbroken when he heard the news.

The decision to suspend was made by M&G Securities Limited, the funds' Authorised Corporate Director, in agreement with the Fund's Depositary and the Financial Conduct Authority has been informed.

This will allow assets to be sold over time, rather than as a fire sale, in order to meet investors' withdrawal demands. Currently, it is showing a loss of 7.8% for investors over the past year.

Langcat consulting director Mike Barrett said the investors involved should be thought of first, and that "for a property fund, even more than Woodford, you would hope that it is a fairly small percentage of your overall portfolio".

The news of its suspension comes five months after celebrity stock-picker Neil Woodford suspended his flagship fund after seeing a spike in outflows.

Ian Sayers, the chief executive of the Association of Investment Companies (AIC), wrote in a letter to MPs in June: "Long-term lessons must be learnt to limit the damage when open-ended funds invest in illiquid assets". As a outcome, it has struggled to sell commercial property.

"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".

The assets owned by the M&G Property Portfolio.are held for the long term and take time to buy and sell, making it hard to immediately meet sudden and sustained levels of redemptions.

The latest suspension reflects badly on the FCA, according to AJ Bell head of active portfolios Ryan Hughes.

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