Institutional investors are being blocked from withdrawing money from a major UK property fund, while contributions made by thousands of pension savers into the strategy will be redirected into cash.
Asset manager M&G has stopped investors exiting its £636m UK Property Fund for up to six months after some clients – most of which are large pension schemes – sought to move their money elsewhere.
Earlier this month City A.M. revealed similar restrictions applying to pension-holders with money in Prudential's UK Property Fund, which buys units in the M&G strategy. Withdrawals from the fund have been subject to delays of up to six months since 3 June, although the company says some exceptions are made, for example when customers wish to take retirement benefits.
On 12 July, Prudential made the decision to temporarily stop all new contributions going into the M&G fund, including regular pension payments, saying it will instead redirect the money into a separate cash fund.
Scott White, Prudential UK head of communications, said: “We always focus on what would be the fairest outcome for workplace pension scheme members, so given that there is a deferral period to withdraw money, we didn't think that it was fair for people to continue to contribute into that fund.”
Property funds have been under pressure in recent months, while regulators have turned the spotlight on illiquid funds promoted to retail investors. Three years ago a string of UK property funds, including one managed by M&G, were forced to suspend trading for several months after investors panicked over the Brexit referendum result and sought to cash in.
M&G, which is owned by Pru, insists its recent UK property fund deferral is temporary, adding that it is in place because clients are reducing risk in their portfolios, and is not related to Brexit or the wider property market.
Irene Chambers, head of UK communications at M&G, told City A.M. that temporary deferral provisions are a common tool in institutional fund management to give fund managers time to sell assets and rebuild liquidity. “Whereas a retail property fund would hold larger amounts of cash, institutional funds hold minimum cash to avoid performance drag, hence the occasional need to defer. The main thing about this is that it protects everyone’s interests,” she said.
Prudential has told customers they will be no worse-off in the cash fund because they will receive returns they would have made had the money been invested in the property fund, should the fund outperform the cash fund.