Not another fund suspension!
Earlier this week we had yet again an announcement of a temporary fund suspension from one of the leading property fund managers in the UK.
M&G Investments announced the temporary suspension of its UK Property fund and feeder property funds. M&G citied the impact of Brexit and significant outflows of money from the fund as the leading causes of the temporary suspension. The suspension is to protect investors that have assets in the fund and to prevent the forced sale of “Bricks and Mortar” assets held within the fund. The Financial Conduct Authority were advised of the situation.
Impact on investors
The fund manager has confirmed that a review of the suspension will be carried out each month, however investors will not be able to encash the investment while the suspension is still in force.
At present M&G have not confirmed when the suspension will be lifted. They have confirmed that they intend to reduce the annual fund charge by 30% while the suspension is in force. Although this is a gesture of goodwill, it does fundamentally represent a problem for investors looking to sell the property fund asset. M&G has produced a factsheet about the suspended fund
Other property funds
Other listed property funds have yet to declare any form of suspension. However, there is a distinct possibility that additional property funds will follow a similar course of action over the next few weeks. We will keep clients apprised of the situation
Investing in property funds have for several years caused issues with temporary suspensions as a property is an illiquid asset. Large commercial properties take time to sell, especially when markets are unpredictable. The last thing a fund manager wants to do is to sell an asset at a heavily discounted value to pay form redemptions in the fund. A run on a fund was demonstrated earlier this year when the Woodford equity oncome fund was suspended and wound up, leaving investors locked into a poor performing asset.
Our view on property funds
While research backs up the notion, commercial property has historically represented a good long term performing asset, the possibility of fund suspensions for the asset class has increased. There is also pressure from a rental income perspective, especially in the retail sector. We have decided to avoid investing new monies into Property funds that primarily invest in “Bricks and Mortar” for the foreseeable future. We are currently reviewing our position on real estate investment trusts (Reits) that predominately hold property companies. We will update clients in the future.
Some good news?
Although the issues of fund suspensions may be of concern, Consilium Asset Management has always taken the approach not to overexpose clients to too much property fund investments. We have never recommended investing into the M&G property fund, and where we have suggested property funds, they have tended to be funds that are not biased to London and the South East or the Retail sector such as shops.
If you are concerned about fund suspensions and property funds, please feel free to contact me – Graham Bond