19 October 2023
If you are covering the news that M&G has called time on its UK property fund, please see the following comment from Oli Creasey, equity research analyst at Quilter Cheviot:
“While it is unexpected, it isn’t a massive surprise to see the M&G fund call time and begin liquidating. In the past we’ve argued that a fund below c. £1bn of AuM may struggle to be sustainable, as the lack of scale makes it hard to put together a diversified portfolio of property assets. And while the fund does not appear to have had liquidity issues this time around (it held 19% in cash and a further 6% in relatively liquid equities as of 31/08/23), the fund has struggled in the past, suspending in December 2019. This combined with a general lack of interest in the sector from investors, plus the overhanging threat of FCA regulation, has driven management to throw in the towel.
“It’s a shame to see another long-standing property fund exit the sector, but it may not be the last. Only a handful of funds remain, and while they tend to be the biggest/best, even they have seen shrinking AuM as property values fell in the second half of 2022, and net redemptions reduced portfolio sizes further.
“It’s also worth noting that while the M&G fund expects the liquidation process to take around 18 months, lower than average property transaction volumes may make this difficult to achieve. We note that while the Janus Henderson fund successfully liquidated in short order in 2022, with a single buyer taking the entire portfolio, others have not been so lucky. Aegon suspended in March 2020, and has been liquidating a relatively small portfolio since summer 2021, a process that is still ongoing. Will the last one out of daily-dealt property funds, please turn off the lights?"
