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Investors trapped for a year as M&G continues property fund suspension

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02/12/2020
The M&G Property Portfolio will continue to be suspended, meaning investors have been unable to access their cash for a year.

The fund was suspended in December 2019 due to high levels of withdrawal requests by investors at a time of Brexit uncertainty and structural shifts in the UK retail sector.

And as the coronavirus pandemic evolved causing fresh market uncertainty, M&G has continued its suspension of the property fund on a month-by-month basis.

It has now confirmed the portfolio remains suspended for dealing in its shares as it “continues to balance the objective of raising cash levels with the need to protect the interests of all investors”.

M&G confirmed it currently has around £2.1bn assets under management with a cash balance of 14.6%.

Since its last update in November, four assets have been sold for £110.8m and a further 10 – valued at £174.2m – are either under offer or have exchanged.

If all assets are progressed as expected, M&G said its cash position will rise to 22.8%, however it added that there’s no guarantee these transactions will complete.

Since the fund suspension, £308.4m of assets have been sold.

The statement to investors read: “Despite the many challenges occupiers faced this year, the fund continues to deliver an attractive distribution yield. A key driver of this is the relatively low vacancy rate (7.6%, as at end October).

“Engaging with tenants helps manage income risk and, as a major commercial property owner, M&G is proactively working with tenants to find solutions that help support businesses, whilst also safeguarding the interests of the many savers and pensioners whose money is invested in these buildings. Rent collection for all quarters in 2020 has been more than 81%, which results in a distribution yield of 5.1%.”

The fund continues to be actively managed and M&G continues to waive 30% of the annual charge “in recognition of the inconvenience caused to clients and customers.”

‘Future for open-ended property funds look bleak’

Ryan Hughes, head of active portfolios at AJ Bell, said: “One year on from the suspension of the M&G Property fund and investors remain in limbo. Clearly events with the pandemic have made the commercial property market much more challenging in the UK and this has made it very difficult for M&G to raise sufficient cash to reopen.

“However, this is not now just an issue for M&G with other managers suspended and little chance of some re-opening soon. The issues with retail only compound the challenges at the moment while the FCA’s move to put in place a notice period are another factor that makes the future for open-ended property funds look bleak.”

Ben Yearsley, director at Shore Financial Planning, said the 30% fee waiver is a “very good, sensible idea”.

He added: “A number of other property funds have re-opened and have clearly had big outflows already. But the maximum danger seems to have passed though as Brexit and vaccine news has changed the mood music.

“The big unknown is what the FCA will say about notice periods. If it brings in monthly or more notice periods, then we can expect more outflows and there maybe more suspensions in the short-term.”

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