M&G Investments has panned “idle” cash in its Property Portfolio in an update from the authorised corporate director reveals the fund will remain suspended while it seeks to manage redemptions.
Fund manager Fiona Rowley and co-manager Justin Upton have raised £242.6m since the fund’s suspension on 2 December.
“Historically, we have held a low cash buffer in the conviction that our customers pay us to invest their money, not to keep it idle – particularly in times of near-zero cash interest rates,” said M&G chief investment officer Jack Daniels in the suspension update.
“We believe that as an asset class, commercial property continues to have an important role to play in helping customers diversify their investment portfolios.”
The fund had 4.8% in cash before its suspension. In contrast, the L&G UK Property, Aviva UK Property and BMO UK Property funds each have close to a quarter of their portfolios in cash, according to FE Fundinfo.
‘Disgraceful’ property funds charge full fees to high cash buffers
Fairview Investing consultant Ben Yearsley was sympathetic to M&G’s point describing high cash levels in property funds as one of his big “bugbears” when it comes to the Investment Association Direct Property sector. Yearsley has no exposure to open-ended property funds due to liquidity and cash levels.
“There are funds with 25% in cash charging full fees. It’s a disgrace,” he said.
“The flip side of that is what you’ve seen at M&G. They were running a much lower cash position and they’ve been caught up by liquidity. It’s a problem with the fund structure.”
M&G has waived 30% of the annual charge during the fund’s suspension “in recognition of the inconvenience caused to investors”.
£100m added to pipeline of disposals
M&G was likely to be the only fund in the sector to suspend thanks to political certainty from the Conservatives’ convincing win at the 2019 general election, Yearsley added.
“I like Justin and Fiona; I think they’re very good managers,” he said. “I think they have been unlucky and they will turn out to be the only fund that will suspend because literally a week after the suspension sentiment turned towards the UK with the election result.”
M&G again attributed the suspension to “ongoing uncertainty over Brexit during 2019 and structural shifts in the UK retail sector”.
The fund has now exchanged or completed on the sale of £70.4m of assets while a further £172.2m are either under offer or in solicitors’ hands, the update said.
An additional £104.8m has been added to the pipeline since the last update on 2 January but there have been no further exchanges or completions over the four-week period.
Property fund suspension faces mixed reception from investors
In the suspension update, Daniels added that M&G had been “encouraged by the support of many investors in the fund, who understand our decision to give the managers room and time to complete disposals from the portfolio at fair prices”.
“While customers want ready access to their investments, it’s also important that their long-term interests are protected,” he said.
But Yearsley noted advisers had challenged M&G over the suspension at its annual investor conference this month with several arguing small retail pots shouldn’t have been lumped in a fund with large institutional and intermediary investors.
“It was obvious the advisers in the room that owned that fund were grumpy about the whole thing,” he said.
Yearsley rubbished the advisers’ line of inquiry, noting property funds need scale to diversify and that it would be difficult for asset managers to limit the fund to investors with smaller pots.