M&G has said it will reopen its property fund on 10 May – nearly 18 months after it was suspended – offering some relief to trapped savers.
The investment firm froze its £2.1billion Property Portfolio Fund in December 2019, fearing that Brexit had caused too much uncertainty and that it would not be able to sell buildings fast enough to return cash to savers who wanted their money back.
Since then, the pandemic has piled more uncertainty onto the commercial property sector as shops have been shuttered and companies are looking to cut back on office space.
Reopening: Investors in M&G Property Portfolio Fund will be able to access their funds in May
But the fund manager said it can reopen it as it now has ‘suitable liquidity’ for client withdrawals, as well for those who want to remain invested, having sold off some of its buildings.
While the fund was closed, manager Justin Upton sold or exchanged 38 properties for £702.7million, reducing the total number to 54, with another £253million worth of assets currently exchanged or under offer.
Nearly 40 per cent of the assets sold were retail properties, with the fund’s exposure to the retail sector reduced to 28 per cent, from a previous near-40 per cent.
The fund’s chair, Laurence Mumford, said: ‘We deeply regret the inconvenience that suspension has caused our customers and clients.
‘The decision to suspend was taken to protect the interests of all of our investors, enabling the fund manager to sell assets in an orderly fashion.
‘We believe this has preserved value for customers, while also maintaining the integrity and future prospects of the fund.’
M&G said it now had 33 per cent of its assets in cash – which suggests it expects ‘material’ redemptions from investors when it reopens, according to Oli Creasey, property research analyst at Quilter Cheviot.
‘A fund such as M&G will typically aim to have c.20% of assets in cash (or other highly liquid assets) and so the increase to 33% suggests material redemptions are expected,’ he noted.
M&G, which reduced its fees by 30 per cent during the suspension, said this will continue until it reopens on 10 May.
It will also continue to waive the annual management fee on cash held above 20 per cent until the end of 2021, although it will start charging customers after that.
Meanwhile, it announced several changes to the fund, including moving to a dual pricing model on a full-spread basis to ensure that buyers of the fund pay the dealing costs of transacting in commercial property.
It also said it would allow the actual property exposure to fall as low as 60 per cent in exceptional circumstances to help manage liquidity, ‘for example as a result of unusually high levels of investor redemptions’.
M&G has cut its exposure to the struggling retail sector to 28 per cent, from a previous near 40 per cent, by selling off some of its retail assets
Moira O’Neill, head of personal finance at interactive investor, said: ‘Investors in these M&G funds will be relieved to learn they can soon access their investment after a sixteen-month deep freeze.’
The news comes as the results of a consultation in open-ended funds launched by the Financial Conduct Authority in August are still pending.
Ryan Hughes, head of active portfolios at AJ Bell, added: ‘While this reopening is welcome, we shouldn’t forget that the outcome of the FCAs consultation into the appropriateness of property in an open ended structure is still outstanding.
‘The consultation closed in November 2020 but as yet no findings and rule changes have been announced, although the key element of the consultation was the potential need to give up to 90 days’ notice to redeem your investment.
‘This will have major implications for investors should this change be confirmed but ultimately would likely stop the huge liquidity mismatch risk that got not just M&G but the whole open ended property sector into this mess in the first place.
During 2020, M&G’s first full year as a stand-alone company after spinning out of Prudential, it made an operating profit of £788million – better than expected, but down from £1.1billion the year before.
And while investors have been flocking to some platforms to put the cash they have saved during lockdown to work, M&G’s funds were not a beneficiary of this. Customers pulled out £12.1billion more from its retail investment arm than they put in.
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