Trading has been suspended in M&G’s £2.5bn property fund after investors rushed to withdraw their money.
Asset management giant M&G said the Property Portfolio has seen unusually high outflows, and blames continued Brexit-related political uncertainty for the fund suspension, which had made it difficult to sell commercial property.
In a statement today, M&G said: “Given these circumstances, we have now reached a point where we believe it will best protect the interests of the funds’ customers by applying a temporary suspension in dealing.”
Any orders placed after midday today will not be accepted until the suspension is lifted. The company is also temporarily waiving 30 per cent of its annual charge.
The fund is particularly vulnerable to the challenges facing the high street, with many retailers going into administration in the past year.
Jonathan De Mello, head of retail consultancy Harper Dennis Hobbs, said: “M&G’s issues are the first sign that property funds are materially starting to feel the pain that retailers have been feeling for years. It is pain that can only get worse for those funds that own buildings or centres in locations that are in decline.”
Funds which invest in illiquid assets but can be traded on a daily basis have come under intense scrutiny in recent months. There have been calls to create a long-term fund to address the structural mismatch.
The portfolio was also one of several property funds that suspended trading immediately after the EU referendum following large outflows. It has since halved in size.
Jason Hollands, managing director of financial planning firm Tilney, said: “Fund suspensions are especially emotive in the wake of the recent debacle involving the Woodford Equity Income fund, but it is important not to confuse this situation which is very different.
“This fund has not had problematic performance, but it is invested in an inherently illiquid asset class and therefore redemptions need to be dealt with through an orderly sale process.”
Patrick Connolly, chartered financial planner for Chase de Vere, urged investors not to panic.
He said M&G has struggled with fund liquidity due to the high number of investors cashing out coupled with a “relatively high” exposure to retail properties that are harder to sell.
“As a result, the amount of cash in the fund has fallen to about five per cent, making it difficult for them to meet ongoing redemptions,” he said.
“Property is a long-term investment and we urge investors not to panic.
“Property still remains an asset class which can play an important role in investment portfolios and, when we have some real clarity on Brexit, the prospects for this asset class will hopefully improve.”
The suspension comes after M&G temporarily stopped investors exiting its £636m UK Property Fund in the summer.
Main image credit: Getty