The fund found itself in a pickle as the UK retail sector hit the skids and sentiment was overshadowed by the UK’s impending departure from the European Union, prompting a rush by investors to withdraw their money.
M&G responded by freezing the fund, since when the retail sector has suffered further calamity in the form of several lockdowns but nevertheless M&G has found buyers for 38 properties in the portfolio and now feels able to reopen the portfolio from May 10.
In recognition of the inconvenience caused to investors, M&G has agreed to waive the fund’s annual charge for the period during which the fund was suspended.
One positive is that properties have been sold at average discount to nav of 0.1%. It hasn’t been a firesale of assets. M&G won’t get any credit as it was their positioning that arguably got the fund suspended, but Justin Upton & team have done a good job in challenging times
— Ben Yearsley (@byearsley) April 20, 2021
“News that the M&G Property fund will finally resume dealing after nearly 18 months suspended will no doubt be welcomed by the many investors who have been unable to access their money for such a long period. With the fund at around GBP2bn, many investors have been stuck in limbo for too long as many of the underlying properties were sold to raise liquidity to reach this point,” said Ryan Hughes, the head of active portfolios at AJ Bell.
“The announcement from M&G also contains further changes to the fund including moving to a full spread basis to ensure that buyers of the fund pay the dealing costs of transacting in commercial property and allowing the actual property exposure to fall as low as 60% in exceptional circumstances. While M&G have announced they won’t charge their annual management charge on cash above 20% until the end of the year, it will resume after that point. It still seems an anomaly that property funds deem it suitable to charge the full annual management fee when 20% of the fund will simply be held in cash,” Hughes said.
“While this reopening is welcome, we shouldn’t forget that the outcome of the FCAs consultation into the appropriateness of property in an open-ended structure is still outstanding. The consultation closed in November 2020 but as yet no findings and rule changes have been announced, although the key element of the consultation was the potential need to give up to 90 days’ notice to redeem your investment. This will have major implications for investors should this change be confirmed but ultimately would likely stop the huge liquidity mismatch risk that got not just M&G but the whole open-ended property sector into this mess in the first place,” Hughes concluded.