Investors in property funds take flight after M&G portfolio is suspended

Investors pulled out almost £200m as UK property funds suffered their worst period of redemptions since the Brexit vote following the suspension of the M&G Property Portfolio – writes Hannah Barnaby

Nearly £1bn has been withdrawn by investors from the fund over the last year and M&G admitted it had been unable to sell commercial property fast enough to fund the rush for the door by investors, accelerating a trend for outflows that ramped up around fourteen months ago.

Property funds have been hit with a wave of redemptions as investors fear a hard Brexit and nervously eye the prospects for the UK property market.

The gating of M&G’s fund sparked fears of a repeat of a crisis that engulfed the sector after the Brexit vote when a wave of withdrawal requests created a domino effect of property fund suspensions; fund network Calastone reported the worst outflows from property funds since the Brexit referendum and thereby the second worst week on record.

£250m was redeemed from property funds in the week following the UK’s vote to leave the EU, forcing funds run by groups including Aviva, Columbia Threadneedle and M&G to halt trading.

However, Edward Glyn of Calastone told the FT: ‘Funds are better prepared this time. They are holding a lot more cash, and are in constant communication with the regulator, but there’s no doubt the latest rush for the exit is putting funds under a lot of pressure to suspend trading.’

‘there’s no doubt the latest rush for the exit is putting funds under a lot of pressure to suspend trading’

Ian Sayers, of the Association of Investment Companies said: ‘When a fund suspends, you start to see people getting worried and selling out of other funds to avoid getting trapped. But it can become a self-fulfilling prophecy – the greater the fear of suspension, the more likely suspension becomes.

Morningstar reported that the £1.3bn Aberdeen UK Property fund lost a net £70m in the days after the M&G suspension; the FT calculates the fund had a £190m in cash at the end of November, which redemptions reduced to £120m.

Janus Henderson’s £2.1bn UK Property fund also experienced a surge in redemptions; the fund’s cash pile was reduced by £32m in just six days from the £389m it held at the end of November.

Calastone reports the largest outflows from property funds were the day after the M&G suspension when investors pulled £60m, but then fell back to around £25m a day: ‘The worst may already be over,’ Mr Glyn said ‘we saw outflows drop sharply on Tuesday, and though we expect them to continue, there are signs they are dropping to levels funds will find more manageable,’.

Property funds sold off many London assets — generally the easiest to sell — to cover the 2016 wave of redemptions; for example, Aberdeen sold an office building at 10 Hammersmith Grove to private equity investors Brockton Capital for £85m, but this means the major property funds may now have few or no London assets that can be quickly sold to meet redemptions

A difficult retail property market has left some funds overweight in the troubled sector, which has faced a wave of high-street failures; Aberdeen UK Property fund has 49.5% in retail, though it is seeking to sell its largest single asset, the Moor shopping centre in Sheffield.

Observers will be watching the aftermath of the election with interest and time will tell how ‘getting Brexit done’ goes down in the sector.

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