The M&G Property Portfolio remains suspended but is anticipating cash will hit 16% subject to a series of deals completing.
The fund had the lowest cash levels in the sector at 4.8% when it suspended in December, but M&G said £245m ($316.6m, €292.2m) of assets are now “in solicitors’ hands, or under offer”.
The total cash holding will jump to 16% if these deals complete, it said, while stressing, however, that there is no guarantee the deals would complete.
Rivals
This would put the fund’s cash allocation more in line with rival property funds.
For example, L&G UK Property has 23%; Kames Propety Income has 20%; Janus Henderson UK Property Paif has 16.4%; and Threadneedle UK Property Paif has 14.3%.
M&G said retail represents 80% of the total deal pipeline, which will reduce the fund’s exposure to the sector from 38% to 32%.
A high exposure to retail was cited as one of the reasons the fund was forced to freeze in December, along with Brexit and “unusually high and sustained” outflows.
Protect investors’ interests
The firm said the authorised corporate director had decided to keep the fund suspended to “best protect the interests of its investors”.
M&G is continuing to waive 30% of the fund’s annual charge in recognition of the inconvenience caused to clients and customers, it said.
In addition to the £245m with solicitors, M&G added that £19m of completions had occurred since the last update, and the cumulative total of completions since suspension in December stood at £70.1m.
The fund’s retail vacancy rate at the end of January was 3.4%, which is below the MSCI IPD Quarterly Universe Index’s 4.8%, the update said.
“We are making good headway in a more liquid market than last year and every effort is being made to ensure we can reopen as soon as possible – we appreciate your patience in this matter,” said Tony Brown, global head of M&G Real Estate.
In the last update from the suspended fund at the end of January, fund manager Fiona Rowley and co-manager Justin Upton had raised £242.6m since the fund’s suspension on 2 December.
M&G Property Portfolio performance versus the IA UK Direct Property sector
Source: FE Fundinfo
Liquidity reassurance
In November 2019, the month leading up to the suspension, investors had pulled £150m from the IA UK Direct Property sector, according to figures from the trade body.
The suspension prompted rival funds in the Investment Association UK Direct Property sector to reassure investors about the relative liquidity of their portfolios.
The M&G Property Portfolio had the lowest cash levels in the sector at 4.8% when it suspended.
The fund typically holds 7.5% to 12.5% cash in the portfolio, although M&G chief investment officer Jack Daniels emphasised in the January update that clients do not pay it to invest in “idle” cash.
The M&G fund also ranked highly for its exposure to the retail sector, including retail warehouses, with a 40% weighting. This was exceeded only by the Aberdeen UK Property Fund, which held 49.5% in the struggling sector.
This month, the BMO UK Property fund switched to offer pricing having only switched from bid to mid in January.
In a letter to investors, BMO Gam said: “With the fund continuing to attract inflows, cash levels remain at an elevated level and the fund manager will continue to prudently look to acquire additional assets to complement the portfolio.”
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