Cash levels on the M&G Property Portfolio still lag significantly behind its peers despite raising £70.4m since suspension with a further £67.4m in the pipeline.
The £2.5bn fund revealed on 2 January, a month after its December suspension, that it would remain closed until cash levels had been “sufficiently restored”. It had a cash position of just 4.8% on 30 November.
In contrast, the Aviva Investors UK Property fund has 30.34% in cash, the highest allocation in the Investment Association UK Direct Property sector. The M&G suspension prompted other funds to reassure investors about the liquidity of their portfolios.
M&G Investments would not comment on the cash levels it is targeting before it reopens. The fund typically holds 7.5% to 12.5% cash in the portfolio.
ACD may have to take a stricter line on cash levels
But Fairview Investing investment consultant Ben Yearsley reckoned the authorised corporate director, which initiated the suspension and will decide when the fund can reopen, could require a higher cash level than that typically targeted by the portfolio managers.
The fund had a “long way to go” if it wanted to reach the cash levels of 20% to 25% that were now typical in the sector, Yearsley said. If that were the case, it would be unlikely to open until at least March given the approximately £250m extra cash that would need to be raised.
“I think the ACD will probably take a stricter line and insist on more cash,” he said. “Their cash levels have been low compared to many others, which I assume is one of the reasons for the problem and having to suspend.”
Cash levels in IA UK Direct Property sector
| Fund | AUM | Cash |
| Aviva Inv UK Property | £521.6m | 30.34% |
| L&G UK Property | £3,161.7m | 26.20% |
| BMO UK Property | £509.1m | 23.80% |
| Janus Henderson UK Property | £2,126.0m | 18.49% |
| TIME Investments Social Long Income | £99.0m | 18.45% |
| TIME Investments Commercial Long Income | £449.8m | 18.00% |
| Aberdeen UK Property | £1,161.8m | 15.83% |
| Kames Property Income | £585.0m | 14.70% |
| LF Canlife UK Property | £372.3m | 10.80% |
| Threadneedle UK Property | £1,098.0m | 6.30% |
| Royal London Property | £413.0m | 4.90% |
| M&G Property Portfolio | £2,407.6m | 4.82% |
Source: FE Fundinfo
Since suspension, the fund has completed on a £51.4m Ravenside Retail Park in Edmonton and exchanged on a £19m property in Staines.
That would take the cash level to 7.6%, which would still be lower than nine peers in the Investment Association UK Direct Property sector. The fund with the next lowest cash level, Royal London Property, is not a daily dealing fund.
A further £67.2m that is “under offer or in solicitors’ hands” would take the cash level to 10.3%. M&G did not give a timeline for the deals to complete instead telling Portfolio Adviser it was their top priority.
Yearsley said progress had been good given the period covered by the suspension update included the UK general election and the Christmas break. But the deals that have gone through were likely in the pipeline before the fund suspended, he said.
M&G did not provide information on what proportion of the deals were initiated after the suspension.
Yearsley said it was in investors’ best interests for the asset manager to not rush sales. “The whole point about this suspension is it gives them breathing space to get the best price for their assets.” He also thought the certainty produced from the Conservatives’ win at the 2019 general election would stabilise net sales in UK property funds.
The ACD will continue to report progress on the fund suspension on a monthly basis.
