Brexit: M&G suspends trading on £4.7bn Property Portfolio
M&G has joined Standard Life Investments and Aviva in suspending trading on its property fund in order to meet redemptions, amid a post-Brexit rush to exit the asset class according to Investment Week.
Trading has been suspending in the M&G Property portfolio with immediate effect, with Aviva Investors suspending trading earlier today and SLI suspending yesterday.
M&G said: “We announce a temporary suspension of trading in the shares of the M&G Property Portfolio and its feeder fund. Investor redemptions in the fund have risen markedly because of the high levels of uncertainty in the UK commercial property market since the outcome of the European Union referendum.
“Redemptions have now reached a point where M&G believes it can best protect the interests of the funds’ shareholders by seeking a temporary suspension in trading.”
The group went on to add that this would give the fund manager time to raise cash levels in a controlled manner. M&G will review the suspension every 28 days.
Earlier today, trading was been suspended in the Aviva Investors Property trust with immediate effect, while SLI suspended trading yesterday.
An Aviva Investors spokesperson said: “The extraordinary market circumstances, which are impacting the wider industry, have resulted in a lack of immediate liquidity in the Aviva Investors Property trust.
“Consequently, we have acted to safeguard the interests of all our investors by suspending dealing in the fund with immediate effect. Suspension of dealing will give Aviva Investors greater control in managing cashflows and conducting orderly asset sales in order to meet our obligations to investors wishing to redeem their holdings.”
The group went on to add over recent months it had been experiencing higher than usual volumes of requests to redeem investment in the trust, and this, coupled with challenging market conditions and investor sentiment, has led to a lack of immediate liquidity.
“We have therefore taken the decision to suspend dealing. We believe this in the best interest of our investors.”
Income payments from the trust will continue as normal.
The announcement comes after FCA chief Andrew Bailey, who has held the role for two and a half days, said the structures of these funds is one of the prelimenary issues he would like to address.
Yesterday, Standard Life Investments suspended trading on the SLI UK Real Estate PAIF and the SLI UK Real Estate income and accumulation feeder funds.
In a statement, SLI said: “Due to exceptional market circumstances, Standard Life Investments has taken the decision to suspend all trading in the Standard Life Investments UK Real Estate Fund (and its associated Feeder Funds) from 12:00 noon on 4 July 2016.
“The decision was taken following an increase in redemption requests as a result of uncertainty for the UK commercial real estate market following the EU referendum result.
“The suspension was requested to protect the interests of all investors in the fund and to avoid compromising investment returns from the range, mix and quality of assets within the portfolio.”
The firm said the suspension will end “as soon as practicable”, and will be formally reviewed at least every 28 days.
The move comes after SLI adjusted the market value of the fund down last week following concerns over the future for property valuations after the UK voted to leave the European Union. It also moved from normal monthly to weekly valuations for its open-ended UK commercial real estate funds.
Aberdeen, F&C, and Henderson also made similar changes to their property mandates as UK retail investors began to pull out of property, with analysis from rplan.co.uk finding 76% of withdrawals over the weekend following the Brexit vote were from property funds.
In its May statistics, the Investment Association revealed that property funds saw a net retail outflow of £360m over the month, making it the second worst performing asset class ahead of equity funds, which lost £439m.
As a result of these outflows, M&G, Henderson and Columbia Threadneedle all changed the pricing structure on their property funds from an offer to a bid basis, while Standard Life Investments moved from offer to mid, and Aberdeen shifted from mid to bid.Laith Khalaf, senior analyst at Hargreaves Lansdown commented on the suspensions:
“The dominos are starting to fall in the UK commercial property market, as yet another fund locks its doors on the back of outflows precipitated by the Brexit vote. It is probably only a matter of time before we see other funds follow suit.
“The problem these funds face is that it takes time to sell commercial property to meet withdrawals, and the cash buffers built up by the managers have been eroded by investors heading for the door, both in the run up to the EU referendum, and in the aftermath.
“These managers will now be adding to the supply of commercial properties on the market, which is likely to put downward pressure on prices. Foreign investors might be tempted in by the fall in sterling, but equally they may decide to steer well clear of an economy in limbo.
“Investors in property funds need to focus on the reasons they bought commercial property in the first place, and consider whether they are still intact, because there may be challenging times ahead.’