M&G has suspended trading in its property fund, one of the UK’s largest at £2.5bn.
In October I highlighted new FCA rules for property funds, predicting “more frequent suspensions, higher cash holdings or probably both”.
In suspending its dealings in its property fund, M&G intends to protect investors by giving its managers more time to dispose of illiquid properties and avoid “fire sales”.
Property managers are blaming their funds’ woes on Brexit uncertainty coupled with the demise of the High Street. The economic environment plays its part, but this suspension highlights the structural issue with holding property in an open-ended fund and promising daily dealing. Everything works whilst money flows in, but if cash flow turns negative liquidity vanishes as assets can’t be sold quickly enough to give investors their money back.
Other investment groups may follow M&G in “gating” their property funds, although another large UK property fund manager, Aviva, says it has built its cash position to 30% in order to weather such storms. That may not be sufficient and it makes a poor investment for those that actually want property exposure.
Have I got any exposure?
Courtiers funds do not hold any positions in open ended commercial property funds.
I will be talking more about liquidity and governance at our 2019 Client Seminar next week. We look forward to welcoming you.
Caroline Shaw CFA, MEng (Hons), Dip PFS, IMC, Chartered MCSI
Head of Fund & Asset Management
Issued by Courtiers Asset Management Limited, CAM1219314. Courtiers Asset Management Limited is Authorised and Regulated by the Financial Conduct Authority - Register No: 616322.
Warning – the views expressed by Courtiers in this summary and any video and video transcripts, are reached from our own research. Courtiers cannot accept responsibility for any decisions taken as a result of reading this document, watching the featured video or reading the video transcript and investors are recommended to take independent professional advice before effecting transactions. The price of stocks, shares and funds, and the income from them, may fall as well as rise. Past performance is not necessarily a guide to future returns.
We do not endorse nor accept responsibility for the content of any website not operated by Courtiers which you may visit by following a link from this article.