Another UK Fund Just Slammed its Doors Shut on Investors

This time, a fund liquidity crisis traps institutional investors, including pension funds.

Less than a week after the Bank of England issued a warning about the systemic risks posed by illiquid investment funds, news has surfaced that another run-on-the-fund caused fund managers to suspend withdrawals: This time, it’s M&G Investments, the fund management arm of UK insurance giant Prudential, that has suspended withdrawals from one of its property funds.

The move come into force last month and was apparently triggered by a rush to the exits from a number of big clients, most of whom are large pension funds.

Restrictions were also placed on certain withdrawals from the Prudential UK Property fund, which feeds into the M&G fund. According to The Daily Telegraph, around 8,000 people have money in the fund, of whom around 5,000 – those aged less than 55 – will not be able to access their funds until the restrictions are lifted.

“Our customer base consists of large pension funds which invest with us for the very long term,” M&G said. “Some schemes that have been invested with us in this fund since the 1970’s are de-risking, which is why it is now in temporary deferral.”

This flurry of redemptions — a classic run on the fund — has forced M&G’s property fund to sell properties in its portfolio, which include British retail parks, offices and industrial property, to raise enough money to meet withdrawal demands. These are not exactly liquid assets and they can take months, if not longer, to offload at prices above bargain basement level, which is why M&G has suspended withdrawals for clients for up to six months.

“Occasionally we put withdrawal requests on hold for this type of fund, which enables us to get the best price we can for property we are selling within it,” M&G said.

This is not the first time M&G has had to suspend withdrawals from one of its property funds. In July 2016, amidst the turmoil that roiled UK markets immediately following the Brexit vote, the M&G Property Portfolio, a £4.4 billion fund, was one of six commercial real estate (CRE) funds that opted to temporarily suspend redemptions as a flood of investors rushed for the exits.

Continue reading the article on Wolf Street

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