One of Britain’s largest funds has been forced to suspend dealing due to problems with liquidity, risking billions of investor funds and potentially similar losses to the Woodford Fund failure from earlier this year.
M&G (Municipal & General) halted investor access due to ‘unusually high and sustained’ withdrawals. Their Property Portfolio is a £2.5 billion fund which accounts for commercial properties: retail, office space, and industrial sites in particular.
M&G Property Portfolio. Dealing suspended. Time for another conversation about liquid assets in open ended daily traded vehicles? Letter blames #Brexit. But better to blame the structure? https://t.co/DmH0501OXU— Merryn Somerset Webb (@MerrynSW) December 4, 2019
Property is well-known as a relatively illiquid asset, but the Financial Times Adviser magazine reported earlier this year how the M&G Property Portfolio (then valued at a higher £3.1 billion) was one of many funds in the sector which offered daily liquidity and held cash funds from management fees in order to achieve this flexibility. The article even features a quote about how “the cash element was to provide liquidity and liquidity had to be managed, so the fee was justified.”
In a statement to investors, M&G blamed difficulties surrounding Brexit as a hindrance causing investors to lose confidence in the fund, in turn leading to difficulties to sell off these commercial properties. "Given these circumstances, we have now reached a point where M&G believes it will best protect the interests of the Funds' customers by applying a temporary suspension in dealing."
This isn’t the first time that the Property Portfolio has been suspended due to liquidity difficulties; the fund was suspended for four months around the time of the 2016 Brexit referendum and the uncertainty experienced then. Since the FT article, £600 million has been withdrawn from the fund, but Morningstar data report that £992 million has been taken out in the past 12 months.
Only this morning, Morningstar reported that the fund has lost 7.9% value this year, which makes it the worst performing fund in the Investment Association's UK Direct Property sector, and that it had been sitting on a large sum of cash – usually a sign of expected withdrawals.
This links aptly to this tweet from Simon Gompertz at the BBC:
M&G fund suspension: I understand the Property Portfolio fund had only 5% cash and dropping, as investors pulled out money, compared with 15-20% with other property funds— Simon Gompertz (@gompertz) December 4, 2019
The fund owner is reducing its annual account fee by 30% as compensation to those investors affected, but many will be worried that their investments will be markedly devalued – similar to the Woodford Equity Fund suspension earlier this year.
M&G have not said when the fund will resume normal trading, and that it will be assessed on a month-by-month basis.