Investor panic withdrawals force M&G to suspend £2.5 billion property fund

5 December 2019

During the suspension period the annual fund charge will be cut by 30%

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M&G Investments has suspended its M&G Property Portfolio, due to the fund being unable to meet cash withdrawals or 'redemptions.'

The £2.54 billion fund had received “high and sustained outflows,” the company said. As a result, M&G Investments has stopped investors from withdrawing their money. 

According to M&G, investor withdrawals have come against a backdrop of “continued Brexit-related political uncertainty and ongoing structural shifts in the UK retail sector”, which it added “have made it difficult for us to sell commercial property.”

The fund plans to use the suspension to raise the necessary cash to meet redemptions. During the suspension period the annual fund charge will be cut by 30%.   

The suspension comes as increasing questions are being raised about the appropriateness of using the open-ended fund structure to hold illiquid assets such as property.

Open-ended funds offer daily liquidity, meaning that when an investor sells out of the fund, the fund manager typically sells down part of their holding to return the cash. However, illiquid assets such as property take more than a day to sell.

This issue most prominently appeared following the Brexit vote in 2016, prompting the regulator, the Financial Conduct Authority, to revise rules for open-ended funds holding illiquid assets.

However, as the Neil Woodford debacle showed, funds in other asset classes are also at risk of this liquidity mismatch.

Most prominently, Bank of England governor Mark Carney has been sounding the alarm about the liquidity risk of some funds. Following the Woodford suspension he argued that funds that invest in illiquid assets offer daily dealing are “built on a lie” and called for changes to regulations.

There is also concern about the liquidity risk of exchange traded funds or 'ETFs.' Some have argued that those investing in less liquid assets such as corporate and emerging market debt could see liquidity dry up in the next market downturn.

According to M&G, orders placed after midday (or 11am via MyM&G) on 4 December 2019 will not be accepted until the suspension is lifted. M&G said it will keep customers fully updated.

This article first appeared on our sister website Money Observer

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