The M&G Property Portfolio remains closed for another month at least but its independent valuer has said price uncertainty is no longer an issue for a further two sectors in the market, accounting for 5.4% of the fund’s assets.
In its latest update, the fund’s authorised corporate director said it was in investors’ best interests to keep the fund frozen for an eighth month because difficulty remained in valuing certain assets in the portfolio due to lack of transactional activity.
But it said as of 11 July material uncertainty no longer applied to the value of central London offices and professionally managed, institutional grade student accommodation, which together account for 5.4% of the M&G portfolio.
In total 28.4% of the M&G Property Portfolio’s assets are now no longer subject to the material uncertainty clause after it was lifted for UK industrial and logistics properties in June.
M&G said 71% of the fund’s billable rent and service charge for June has been collected, adding the level of income paid out to investors will continue to be influenced by the level of rental income received from tenants.
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At the end of June the fund had 8.8% in cash, up from just 4.8% at the time of its December factsheet. In April M&G said it anticipated the cash position reaching 16% once the portfolio has sold properties, but the update said no properties have been sold in the past month. The fund has about £180m of assets under offer for sale or in solicitors’ hands.
The fund’s current size stands at £2.2bn.
Liquidity issues dominate open-ended property funds
Fairview Investing investment consultant Ben Yearsley said progress is being made but there is still a way to go. He added the fund has more of an issue with liquidity than material uncertainty.
“[Liquidity] was the reason the fund suspended as it ran out of cash basically,” he said. “Add material uncertainty in and it’s a double whammy for investors in this fund. Material uncertainty affects all direct property funds and it’s gradually being taken off.
“I wouldn’t want to single out M&G necessarily as I think direct property funds are not suited to daily dealing. All physical property funds are challenged.”
‘Small glimmer of hope’
AJ Bell personal finance analyst Laura Suter said the update provided a “small glimmer of hope” for investors trapped in the fund but noted 70% of the fund is still invested in assets where there is no certainty over their value.
“The fund has a long way to go before it gets below the FCA’s 20% threshold for uncertainty over valuations,” she said.
Suter said the fund is “fighting fires” on two sides before it can re-open: one on the accurate valuation of its assets and another on the level of liquidity in the fund.
“Investors will be disappointed that no properties have been offloaded since last month’s update and there are still £180m of assets either under offer or exchanged on. Considering over the past seven months of the fund closure there has been almost £150m of assets sold, there could be a long road to go before there is sufficient cash to re-open.”
Last week the Financial Conduct Authority announced it will launch another consultation into open-ended property funds which critics said smacks of “deja vu”.
The FCA and the Bank of England had been planning to address the liquidity mismatch of certain illiquid assets in daily-dealing funds earlier this year, but the probe was delayed following the outbreak of the coronavirus.
See also: M&G property manager Fiona Rowley to exit as BMO Gam lifts fund suspension
Last month, BMO Global Asset Management lifted the suspension on its Property Growth & Income portfolio. The £490.4m fund, managed by Marcus Phayre-Mudge and George Gay, has much less exposure to UK physical property than some of its peers with 28.8% held in the asset class.
