Another “run on the fund.” More investors can’t get their money out but contemplate big losses
In what is beginning to look like a trend, another British open-ended fund slammed its doors on investors today. After a surge of redemptions, M&G Investments, the fund management arm of UK insurance giant Prudential, decided to halt dealings in its direct property fund, which has more than £2.5 billion ($3.2 billion) in assets under management, as well as its feeder fund.
In July, M&G had already suspended redemptions at one of its property funds, with assets of just over £650 million, which intensified the pace of redepemptions from its other property funds. Today, the company extended the suspension to cover all of its funds.
The company said that M&G Property Portfolio was suspended after “unusually high and sustained outflows” triggered by “Brexit-related political uncertainty and ongoing structural shifts in the UK retail sector.” According to Morningstar, investors have yanked an estimated £900 million from the fund in the first ten months of this year. The portfolio had only one month of positive flows since Britain voted to leave the EU in June 2016.
“Given these circumstances, we have now reached a point where M&G believes it will best protect the interests of the Funds’ customers by applying a temporary suspension in dealing,” the fund said in a statement.
M&G Property Portfolio invests in commercial properties across the UK including offices, industrial property and retail parks, a sector beleaguered by retailer failures and crushed values. According to the FT, around 37% of its portfolio is held in retail warehouses, shopping centers, designer outlets and standard retail, and another 2.5% in supermarkets.
Following the announcement of the suspension of the fund, shares in M&G dropped 2.6%, while the value of the property portfolio fund tumbled to its lowest level in six years. The fund is the worst performer in the IA UK Direct Property Sector in the past three years. Year-to-date, the fund is down 7%, according to Morningstar.
It also has one of the lowest cash levels in the industry: just 5% of total holdings, according to the FT, or 10%, according to Morningstar, likely depending on the timing when the measure was taken. Both agree that these cash levels are among the lowest in the industry. This makes the fund acutely vulnerable to a classic “run on the fund.”
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Nick Corbishley 