Investment house M&G has extended the suspension of its £2.3billion Property Portfolio fund, which was down 7.9 per cent over 2019, to ‘best protect the interests of investors in the fund’.
The fund was initially gated on 4 December last year after a flood of investors pulled their money out over the previous 12 months.
Today, the fund’s management said they will waive 30 per cent of their annual charge during the closed period.
M&G suspended its Property fund in December 2019 following a high level of investor withdrawals largely due to uncertainty over Brexit and structural shifts in the UK retail sector
A statement from M&G said continued suspension will allow its managers – Fiona Rowley and Justin Upton – to carry on raising cash ‘to meet client redemptions in an orderly fashion’, while preserving value for shareholders over the long term.
Since the gating last month, the managers have managed to raise £70.4million to pay back investors by selling some of their property interests at ‘market value’.
It said a further £172.2million is either under offer or in solicitors’ hands and as at the end of December 2019, 4.8 per cent of the fund was held in cash.
Jack Daniels, chief investment officer of M&G, said: ‘Since suspending the fund, we’ve been encouraged by the support of many of its investors, who understand our decision to give the managers room and time to complete disposals from the portfolio at fair prices.
‘While customers want ready access to their investments, it’s also important that their long-term interests are protected.’
Daniels said historically, the fund has held a low cash buffer in the conviction that customers pay management to invest their money, rather than keep it idle – particularly in times of near-zero cash interest rates.
AJ Bell’s Hughes said the latest news is a reminder for investors of the dangers of holding illiquid assets in daily traded funds
He added: ‘The fund continues to be actively managed during suspension of dealing, with income payments and fund reporting as normal. M&G will continue to waive 30 per cent of the annual charge in recognition of the inconvenience caused to investors.’
Meanwhile Ryan Hughes, head of active portfolios at AJ Bell, added the managers will want cash levels to be higher before they are in a position to reopen.
He said: ‘The managers will be very conscious to ensure there is a sufficient cash buffer following the reopening, as the last thing they want is for the fund to have to suspend again if redemptions accelerate.
‘Investors should be reminded of the dangers of having illiquid assets in daily traded funds.
‘While other major property funds have avoided succumbing to a similar fate, they need to understand the liquidity risk they are taking when investing in assets that are hard to sell in challenged markets.’
Will 2020 be a fresh start for UK commercial property?
Meanwhile, industry experts have predicted 2020 will be a more positive year for UK commercial property following years of uncertainty after the EU referendum result in June 2016.
A recent report entitled Real Estate Market Outlook 2020 United Kingdom by CBRE Research, said investment is likely to pick up following the general election, though concerns about the future trade relationship with the EU will continue to undermine confidence.
It also predicted a brighter future for UK retail, a key factor affecting commercial property performance, stating there will be continued structural change in the sector in 2020.
It added: ‘Performance will be strongest in London and the surrounding key urban locations while polarisation of assets will see prime retail outperform the rest.
‘Repurposing of assets will be the key trend in 2020, converting excess retail space to create mixed-use destination schemes.’
Furthermore, the past two years have seen rising rents in London’s largest business district and this trend is only set to continue. Oxford Economics predicts around 203,000 new office jobs will be created in London over the next five years.
However when compared with other European cities, London trades on a sizeable discount as yields (rent as a proportion of the property value) have dropped significantly in Berlin and Paris as investors pile into real estate in search of returns.
James Beckham of CBRE said: ‘The election result has already boosted investor confidence so both deal-making and prices [in London] could rise next year’.
Following the 2019 general election which saw success for the Conservative party, some industry experts have predicted a rise in demand for UK commercial property for 2020
Ben Yearsley, of Shore Financial Planning, added: ‘There has been increased interest in UK commercial property since the election which doesn’t surprise me as overseas investors especially were put off UK assets due to the threat of former Labour leader Jeremy Corbyn.
‘Whilst this increased interest doesn’t change the underlying fundamentals – for example the struggle on the UK high street – it should make it easier to sell property.’
|Fund||Fund size Dec 2018 (£billion)||Fund Size Jan 2020 (£billion)||Annual management charge (%)||Ongoing charges figure (%)||Yield (%)|
|Aberdeen UK Property||0.5||1.1||0.75||0.89||2.95|
|Aviva Investors UK Property||1||0.5||–||0.74||2.91|
|BMO UK Property||0.3||0.5||0.75||0.79||2.9|
|Janus Henderson UK Property PAIF||3.1||2.1||0.75||0.84||3|
|Kames Property Income||0.4||0.6||0.75||0.82||5.15|
|L&G UK Property||2.4||3||–||0.75||3|
|M&G Property Portfolio||4||2.3||0.81||0.81||4.2|
|Royal London Property||0.4||0.4||0.75||0.8||–|
|Standard Life Investments UK Real Estate||2.6||1.8||0.75||0.9||3.4|
|Threadneedle UK Property||1.1||1.1||0.75||0.8||4.4|
|Source: Latest available data via FE Analytics as at 29 January 2020|
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.