The M&G Property Portfolio suspension has prompted Kames Capital and Columbia Threadneedle to reassure investors about the relative liquidity of their portfolios as their cash levels sit lower than rival funds.
M&G announced on Wednesday it was freezing its £2.5bn Property Portfolio because of “unusually high and sustained” outflows coinciding with Brexit uncertainty and changes in the UK retail sector. It had 7.53% cash at the end of September, according to its latest factsheet, although Morningstar says this had dropped to 5% ahead of the fund suspension.
Fund groups have sought to reassure investors that their funds remain open and are being closely monitored for redemptions and liquidity.
The episode has echoes of summer 2016 when several open-ended property funds, including M&G, Standard Life, Aviva Investors, Columbia Threadneedle and Janus Henderson, were forced to suspend dealing after the Brexit referendum.
Kames finds relative liquidity in smaller lot sizes
Among the largest funds in the Investment Association UK Direct Property sector, Kames and Columbia Threadneedle had the lowest allocations to cash at 8.6% and 6.3% respectively. Both highlighted the relative liquidity of their portfolios.
A Kames Capital spokesperson said the managers have been monitoring liquidity in the £614m Kames Property Income fund, which has an 8.6% exposure to “net current assets” which includes cash, short-term assets and liabilities within the fund.
A spokesperson said: “We actually think the current market conditions are the same as those we have experienced since 2016. To mitigate these uncertainties, we have taken a very proactive approach and have been regularly monitoring our liquidity during this period.
They added: “We also have smaller lot sizes, typically in the £2m to £15m category which is more liquid as there are potentially more buyers in this size of the market.
“Finally, we have a diverse portfolio and have generally avoided the central London market. We have bigger exposure to the regional office market, about 55% of portfolio, and this sector has proved more resilient to current conditions, with growing demand and rising prices.”
Columbia highlights sales in line with valuations
A Columbia Threadneedle Investments (CTI) spokesperson said “prudent liquidity management has always remained key to our investment philosophy” in the £1.2bn Threadneedle UK Property Authorised Investment fund.
It has a cash weighting of 6.3% according to the fund factsheet dated 31 October.
“The fund’s cash levels are maintained within a liquidity corridor of 5 to 15% and year to date we have comfortably met all client redemption requests. Furthermore, there have been a number of days more recently whereby we have witnessed net investor inflows.”
Like Kames, CTI also said the portfolio comprises smaller lot sizes, consisting of around 170 properties and 1,300 underlying tenancies. It added in terms of property sales, year to date proceeds have been “in line with independent valuations across all major sectors”.
“All property funds are managed differently and we continue to monitor client and market sentiment with a view to ensuring good customer outcomes,” they added.
Aviva fund holds over 30% cash
The largest cash levels of the funds examined by Portfolio Adviser was in the £542m Aviva Investors Property Fund, which the allocation stood at 30.9%.
An Aviva Investors spokesperson said: “We are in a period of heightened market uncertainty and believe this is an appropriate level given market conditions. Robust liquidity management remains a key priority for the fund managers.”
BMO Gam and Janus Henderson confirmed their respective funds, the £506m BMO UK Property fund and the £2.1bn Janus Henderson UK Property Paif, remain open.
The BMO Gam fund has a 25.3% weighting in cash, according to its latest factsheet. “Cash levels are above our longer-term target and we are actively, but carefully, pursuing acquisitions to match the quality of the existing portfolio,” said BMO UK Property fund manager Guy Glover.
He added: “The fund was built with its liquidity in mind and we maintain a cautious approach, holding significant cash levels currently at c24%. The fund currently has a stable and diverse investor base seeking long-term exposure to UK property.
“We keep in close contact with our investors who understand that the fund provides a diverse exposure to UK property, importantly with a low retail weighting, and offers a stable long-term income stream. The fund remains well positioned due to this differentiated approach.”
The Janus Henderson fund has a 16.7% weighting in cash. A Janus Henderson spokesperson said: “We confirm that the Janus Henderson UK Property Paif and Feeder fund remain open.”
“Since 2016 we have managed the fund to ensure that we continue to have a diverse portfolio of high-quality properties for our investors and hold a higher level of cash in the face of continued political and market uncertainty.”
Aberdeen monitors sentiment in light of M&G
An Aberdeen Standard Investments spokesperson said at the end of October, cash positions in the £1.9bn SLI UK Real Estate and £1.3bn Aberdeen UK Property funds were 15.7% and 12.7% respectively.
They added: “The intention is to maintain this risk-off stance until we have greater clarity on the outlook for the UK economy in the context of Brexit and the upcoming general election.
“We will continue to monitor the situation closely and in particular any impact M&G’s decision has on investor sentiment towards the sector. Our prime focus as always is to act in the best interests of investors.”
Investment Association figures published on Thursday revealed investors pulled £148m from the UK Direct Property sector in October, marking the peer group’s 13th consecutive month of outflows totalling £1.8bn.
