Investors withdraw £ 800million from M&G property portfolio in first month of reopening
The M&G real estate portfolio was beaten by buyouts after reopening in May for the first time in 17 months.
The UK property fund, which closed months before the series of industry suspensions due to the Covid crisis, had £ 2.1bn in assets when it resumed operations on May 10 .
But by the end of the month, that figure had fallen to £ 1.3bn after investors withdrew £ 806m from the fund, according to Morningstar data.
A spokesperson for M&G said the company could not comment on the data on the flows, but said the initial releases were fairly in line with expectations.
Ben Yearsley, investment consultant at Fairview Investing, called May’s cash outflows “pretty gruesome but not unexpected.” “Unfortunately for M&G, the release will continue although at a slower pace,” he said.
The fund was frozen on December 4, 2019 for liquidity reasons after its independent appraiser Knight Frank reduced the value of its retail holdings, prompting a wave of investors to head for the exit.
See also: M&G to unfreeze £ 2bn property portfolio after almost a year and a half of suspension
Revamped top 10 includes more offices and industries
Since then, manager Justin Upton has made a number of changes to reduce risk and strengthen the fund’s income stream.
During its 1.5-year suspension, £ 702.7million in assets were sold, much of it at retailers, bringing cash levels to 33.2%. Retail now represents 28.1% of the fund’s exposure instead of 38.4% when it was suspended.
Now offices are much more prominent, with the revamped Top 10 including investments in 1-8 Bedfont Lakes in Heathrow, Enterprises House in Uxbridge, Aurora 120 Bothwell Street in Glasgow and Portland & Riding Estate in London.
Meanwhile, the top ten industrial sites include Heritage House, Unit 2 and 7A / B / C Millington Road and Junction Six Industrial Estate.
Other changes include the move to dual pricing on a full spread basis from June 25 to “provide greater transaction clarity, reduce the potential for large price fluctuations and ensure better alignment with the horizon. long term of the fund ”and a cash weighting of approximately 20%.
Real estate funds still plagued by structural problems
Despite the changes, Yearsley still believes the beleaguered UK property fund faces a tough road. “It doesn’t matter what M&G does – the structural problems with physical property funds still exist,” he said.
The UK direct property sector posted outflows of £ 21.9million last month, according to data from the Investment Association. So far this year, £ 365.3million has left the industry.
Real estate funds went through a scorching spell in 2020, with most of them on hold after the Covid crisis made it impossible to value their underlying holdings.
While most have since reopened, Aviva Investors decided it was best to liquidate their real estate fund after a suspension of almost 15 months.
The FCA is considering the use of long-term asset funds as a solution to the liquidity imbalance of real estate funds, but its findings will not be released until the third quarter of this year.