Property fund suspensions: will other funds follow M&G?

The suspension of the M&G fund, the UK’s largest, has raised concerns about other commercial property focused open-ended funds.

Funds and Investment Trusts December 6, 2019 by Tom Bailey

This week (on 4 December) saw the suspension of M&G Property Portfolio fund. Unable to meet investor redemptions, which it blamed on Brexit uncertainty and the weakness of UK retail property, the fund firm stopped investors withdrawing their cash.

Coming in the wake of the Woodford debacle, this has renewed concerns about the liquidity mismatch for open-ended funds.

However, the suspension of the M&G fund, the UK’s largest, has raised concerns about other commercial property focused open-ended funds.

First, memories of the widespread property fund suspensions after the Brexit vote in 2016 are still fresh in investors’ minds. At the same time, as figures from the Investment Association show, investors have been pulling money from property for over a year.

The latest figures for October 2019 showed a 13th consecutive month of outflows from the property sector, with investors pulling out a collective £148m.

So will the other big UK property focused open-ended funds follow suit?

Legal & General says its fund’s current positioning (L&G UK Property) and approach puts it in good stead to navigate volatility on investor’s behalf.

It notes: “At present we have high levels of liquidity with 24% held in cash and 4% in real estate investment trusts. We are comfortable with these levels given the current market, and manage this within a robust fund liquidity oversight framework which is in place for all funds.”

Janus Henderson also says that their fund (Janus Henderson UK Property PAIF) has ample liquidity and is not facing suspension any time soon.

The investment company commented: “Since 2016 we have managed the fund to ensure that we continue to have a diverse portfolio of high-quality properties for our investors and hold a higher level of cash in the face of continued political and market uncertainty.”

The amount of cash in the fund has been steadily declining since March 2019, when the fund’s total liquidity stood at 23.9%. By September, that had declined to 17.9%. That gradual decline was likely, at least in part, the result of the sector’s continued outflows.

However, the fund's cash balance has since increased, standing at 18.5% at the end of November. 

The BMO UK Property fund is also safe, insists Guy Glover, the fund’s manager. He says that the fund is adopting a cautious approach, holding high levels of cash.

Right now, the fund has cash levels of 24% which, Glover says, are above the fund’s longer-term target. He says: “We are actively, but carefully, pursuing acquisitions to match the quality of the existing portfolio.”

Glover also points out that outflows from BMO UK Property Fund were not significant following the 2016 Brexit vote. He adds: “The fund did not suspend and was not forced to liquidate assets. This is down to the stable nature of its investor base.” In August the fund switched its pricing, citing Brexit uncertainty. As a result, this left investors who sell the fund with an instant loss of approximately 6.4%. This remains in place.

Kames Capital, meanwhile, noted that its Kames Capital Property Income fund has a cash position of 15%. The company said: “We will continue to closely watch our liquidity and update our investors on a regular basis.”

According to Aberdeen Standard Investment, their two open-ended property funds are currently taking a “risk-off” stance, as the managers await greater clarity surrounding the UK economy, Brexit and next week’s general election.

In practice, this means that SLI UK Real Estate Fund has a cash balance of 17.5% and the Aberdeen UK Property Fund 14.6%.

A spokesperson from the company said: “We will continue to monitor the situation closely and in particular any impact M&G’s decision has on investor sentiment towards the sector. Our prime focus as always is to act in the best interests of investors.”

Elsewhere, Columbia Threadneedle’s UK Property Authorised Investment Fund currently has a cash level of around 10%.

In a statement the company said: “Prudent liquidity management has always remained key to our investment philosophy. The Fund’s cash levels are maintained within a liquidity corridor of 5-15% and year to date we have comfortably met all client redemption requests.

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