M&G open-ended property fund to remain suspended

Despite the successful sale of some assets, the fund has not yet raised enough cash to lift the suspension.

M&G Property Portfolio fund will remain suspended, according to the latest update on the fund.

The fund was initially suspended in early December owing to “high and sustained outflows."

According to the fund, Brexit-related uncertainty and the ongoing weakness of the UK retail sector had “made it difficult sell commercial property.”

As a result, the fund suspended trading to give it time to raise the necessary cash to meet redemptions.

Since suspension, the latest update notes, the fund has managed to raise £70.4 million through the sale of assets, while a further £172.2 million are said to be either under offer or in solicitors’ hands.

However, despite the successful sale of some of the assets, the £2.36 billion fund’s cash positions still sits at just 4.8%.

According to Ryan Hughes, head of active portfolios at AJ Bell: “The portfolio managers will want levels to be much higher before they are in a position to re-open.

“They will be very conscious to ensure there is a sufficient cash buffer following the re-opening, as the last thing they want is for the fund to have to suspend again if redemptions accelerate.”

The initial suspension of M&G’s property fund came amidst growing concerns about the appropriateness of open-ended funds holding illiquid assets. Open-ended funds offer daily liquidity, meaning that when an investor sells out of the fund, the fund manager typically sells down part of their holdings to return the cash. However, illiquid assets such as property take more than a day to sell.

This issue most prominently appeared following the Brexit vote in 2016, prompting the Financial Conduct Authority to revise rules for open-ended funds holding illiquid assets.

However, as the Neil Woodford debacle showed, funds in other asset classes are also at risk of this liquidity mismatch.

Most prominently, Bank of England governor Mark Carney has been sounding the alarm about the liquidity risk of some funds. Following the Woodford suspension he argued that funds that invest in illiquid assets offer daily dealing are “built on a lie” and called for changes to regulations.

There is also concern about the liquidity risk of ETFs. Some have argued that those investing in less liquid assets such as corporate and emerging market debt could see liquidity dry up in the next market downturn.

M&G also noted that that they will continue to waive 30% of the annual charge for the fund, in owing to the inconvenience the suspension has caused investors.

Following the suspension of the M&G, we reported on the cash position of the UK’s other large open-ended property funds. 

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