M&G has suspended trading in its property fund, one of the UK’s largest at £2.5bn.
• Property fund redemptions on the increase
• Fears other property fund suspensions may follow
• Managers blame Brexit uncertainty and failing high streets
• Courtiers Funds hold no positions in commercial property funds
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.