Thursday 5 December 2019 5:32 am

Why another property fund freeze was inevitable

Why does it feel like we have been here before? Well, it’s because we have.

It wasn’t that long ago when thousands of investors in property funds flocked to the exit door after the referendum, forcing several major asset managers to temporarily block withdrawals.

So cue the deja vu when M&G yesterday suspended trading in its commercial Property Portfolio for the second time in less than four years.

And that’s before mentioning that M&G deferred withdrawals in a separate UK Property fund only a few months ago, which has a knock-on impact on some of Prudential’s pension-holders.


The Woodford scandal demonstrated that this is as true with property funds as it is with fund managers who pile money into early-stage biotech companies.

Admittedly, this gating mechanism is in place to protect the remaining investors, by giving the fund managers time to sell-off the assets to meet redemption requests. And for those who are invested for long-term goals like pensions, the suspension won’t be such an issue.

But fund gating can be painfully frustrating for investors who are unwillingly locked in, particularly when it’s not clear when they can access their money.

Some will have tens of thousands of pounds frozen in a fund, so it’s not just a matter of inconvenience either.

The commercial property sector is currently out of favour with investors, with outflows reaching £1.6bn in the past year. A suspension of this kind has been expected as the retail sector in particular takes a beating.

But poorly performing investments are only one part of the story; the root cause is the mismatch between the daily dealings of the funds and the illiquid nature of the underlying assets. The Woodford scandal demonstrated that this is as true with property funds as it is with fund managers who pile money into early-stage biotech companies.

There has been a lot of talk about banning illiquid assets from these types of funds, but a clear position is yet to emerge. And in the meantime, more suspensions seem likely — which is as much a problem for the underlying invested companies as it is for the investors.


Brexit uncertainty has often been blamed for fund suspensions over recent years, but if these funds can’t withstand the shocks, they are not fit for purpose. Asset managers can’t control whether investors panic or not, but they can address this structural problem.

How does the industry expect to encourage investment if the sector is plagued with suspended funds?

The Financial Conduct Authority won’t have been surprised by yesterday’s news, and the City will be waiting for its considered response.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

Share