The suspension of M&G’s £2.5bn property fund risks triggering a “domino effect” in the sector as investors rush to withdraw their money, the head of investment platform AJ Bell has warned.
Andy Bell told City A.M. the suspension could be “contagious” for the sector because a “domino effect” could lead to further property fund suspensions.
Asset manager M&G gated its Property Portfolio fund yesterday following unusually high outflows, and blaming Brexit-related uncertainty for making it difficult to sell commercial property.
It is the second time in less than four years that the fund has suspended trading – it was among those that halted trading immediately after the Brexit referendum in 2016.
Bell said that news of the suspension had not surprised him, adding: “I’m only surprised by the fact that people were surprised”.
“Property funds by their nature are in a cycle,” said Bell. “It happened in 2016 and it is happening again”.
He said that investors “should accept that gating the property funds is part of the cycle”, but added that there was a risk of a “domino effect” of more property funds gating following the M&G suspension.
“If one by one they all gate, it doesn’t look great,” said Bell.
Funds that invest in illiquid assets but offer daily trading have come under sustained scrutiny following the spate of suspensions after the referendum and the collapse of Neil Woodford’s investment empire earlier this year.
Woodford had faced a similar liquidity mismatch before the collapse of his company in October. His flagship fund had been suspended since June after becoming overwhelmed by investor withdrawal requests.
Bell advised those investing in the medium to long term not to “panic” over the M&G suspension.
“If people act rationally, it might not be contagious,” he said, but added: “in reality, there is more likelihood it will [become contagious] because the herd effect will take over.”
“A lot of people will overreact and say they want their money back.”