M&G Investments is to close its M&G Property Portfolio due to "declining interest in open-ended daily dealing property strategies from UK retail investors".
The fund has £565 million in assets under management, 17.24% cash and 25 properties, as of today, but was valued at £2.1 billion as recently as at the end of 2019.
The fund manager said the decision has been made in the best interests of all investors and is subject to regulatory approval. The Fund – and its feeder fund – has suspended dealing in shares and M&G is writing to clients on next steps, it added.
"Once a popular type of vehicle for UK retail investors to access real estate, the IA UK Direct Property sector has seen persistent outflows over several years," said M&G. That has come particularly in the wake of the Brexit vote and the COVID-19 pandemic and concerns about the ability for retail investors to quickly redeem their money given the relatively illiquid nature of real estate.
M&G said as the fund has continued to decrease in size - as it has sold assets - it has reduced the manager’s long-term ability to maintain a diversified portfolio without incurring "high, on-going transaction costs required to configure the portfolio" – particularly against a backdrop of continued and potentially accelerating outflows.
M&G says that upon regulatory approval, an orderly sales programme of the fund’s assets will begin, with the objective of ensuring that fair market prices are achieved.
In the current market conditions, M&G expects it will take approximately 18 months for the majority of the portfolio to be sold and "money will be returned to clients when cash becomes available throughout this period". M&G has reduced the annual charge by 30% as of today and abolished it entirely on cash. Income distributions will continue to be paid as normal.
Neal Brooks, M&G’s Global Head of Product & Distribution, said in a statement: “When we launched this strategy in 2005, we – alongside our peers – provided access to an asset class which had historically been unavailable to long term savers in a pooled structure. The market has since evolved. Declining retail investor interest across the sector for this fund structure, alongside uncertainty around their future composition is posing challenges to the future viability of funds like the M&G Property Portfolio – particularly for those investors who require daily liquidity. We considered various options, but believe this is the right decision for our investors.”
The decision to suspend was made by M&G Securities Limited, the Funds’ Authorised Corporate Director, in agreement with the Fund’s Depositary. The Financial Conduct Authority (FCA) has been informed.
It is the second wind up of a major UK open-ended fund in the wake of the COVID-19 pandemic. The process to terminate Nuveen's £1.04 billion Janus Henderson UK Property PAIF open-ended fund begun in April of 2022, with its sale to a joint venture buyer exchanging to Oval Real Estate and Elliott Management.
Trading in the fund was suspended on 4 March 2022 with a wind-up eyed for April. The decision was made after CBRE was appointed to advise on a sale of the assets, as first revealed by CoStar News.
Trading in M&G's then £2 billion Property Portfolio open-ended fund was suspended in December of 2019 in a move that notably predated the widespread gating of funds in the spring of 2020, which was precipitated by the COVID-19 pandemic and its impact on valuations.
Trading in its UK Property Portfolio open-ended real estate fund was suspended from December 2019 until 10 May 2021 when investors had a first opportunity to take money out. The property fund’s value fell to around £1.3 billion by end of May 2021.
The UK open-ended real estate sector uniformly gated as the national lockdown took hold in the middle of March 2020, in response to RICS's recommendation that material valuation uncertainty clauses be applied across UK real estate sectors.
The Bank of England and Financial Conduct Authority have both been pursuing major reviews of UK open-ended real estate funds to tackle the so-called liquidity mismatch between daily trading and the ability to sell real estate in difficult market conditions, with the FCA notably suggesting there should be an up to 180-day delay on redemption requests.
UK property funds actually saw their first inflows in September since July 2022, according to the latest Fund Flow Index from Calastone, the global funds network, as investors responded to better news on inflation and interest rates.
Calastone reported that investors added a modest net £2.87 million to their property fund holdings during September. Significantly, that was driven both by a reduction in the value of sell orders and by an increase in buying activity.