Real estate veteran Lord Oakeshott has called on M&G to provide investors who have been trapped in its suspended £2.1bn Property Portfolio for more than a year with an end date at which they will be able to access their money.
The open-ended fund reported a loss of around 11% over the last year in its latest accounts as commercial property values were hit by the coronavirus. Its co-managers Fiona Rowley and Justin Upton have been selling down holdings to raise the vehicle’s cash levels, but this has been hampered by the collapse in property transactions during the pandemic.
The M&G Property Portfolio suspended trading in December 2019 after a surge in redemption requests hit the sector as investors took fright at the looming Brexit deadline. The vast majority of funds have since reopened, with Aviva lifting the suspension on its UK Property fund in September and Threadneedle’s reopening in October, but the M&G portfolio remains locked.
Lord Matthew Oakeshott (pictured) of Seagrove Bay, the Liberal Democrat peer who chairs commercial property manager Olim and is the founder and largest shareholder in Value and Income (VIN ) investment trust, told the Times: ‘M&G must time limit this sorry saga now or the Financial Conduct Authority should feel their collar. Temporary suspensions should last no longer than three months. M&G must set a firm and final date of 31 March for trapped unitholders to get their cash.’
There has also been some criticism aimed at M&G (MNG) for continuing to take fees on the fund during its suspension, which the Times calculates have amounted to between £12m-14m over that period.
The asset manager argued that it has reduced its fees by 30% during the suspension ‘in recognition of the inconvenience’. It said the active management of the fund ‘continued to enhance the performance of the portfolio’, while the co-managers grapple with the effect of the coronavirus pandemic. M&G pointed out that the managers have continued to collect rents, negotiate tenancies and pay distributions.
Many investors will no doubt question the value of that active portfolio management, however. The fund has now delivered a negative return over five years and in M&G’s own words ‘therefore did not meet the current objective of providing a combination of capital growth and income over five years or more’.
M&G has at least now been able to sell a number of the fund’s holdings, raising £395.8m and taking its cash level to 18.1% after the payment of a distribution on 30 November. This is up from 4.8% when it was suspended and will increase to 25.5% if nine further sales, worth £157.1m, progress to completion.
Investors hope this will mean a lifting of the suspension on trading in the fund will be imminent, but M&G has declined to put any timeframe on this.
The most recent round of property fund suspensions, in late 2019, underlined the problems of holding illiquid assets in open-ended funds with daily liquidity. Similar crunches, where funds shut as they were unable to meet large redemptions, were seen shortly after the Brexit referendum vote in June 2016 and during the financial crisis.
The Financial Conduct Authority is currently consulting on ways to tackle this problem.
In a breakdown of the fund’s asset allocation, the co-managers have been selling high street properties, preferring to retain retail parks, which they believe are better shielded from the rise of e-commerce.
‘For a retailer, a warehouse on a well-located retail park nearby large conurbations provides easy delivery access of goods, has space for their full collection (and meets near-term social distancing requirements), while addressing customer needs of easy access and parking, click and collect and returns – the comparison with the high street is stark,’ Rowley and Upton said.
They added that owners of retail parks also have stronger control over rents and the tenant mix compared to on the high street, where ownership tends to be more fragmented.
Within offices, which face question marks over future demand as people grow accustomed to working from home, the fund is underweight central London and overweight the rest of the country, but has been reducing its exposure to the sector overall.
The pair said they have also bought into a number of retail investment trusts (Reits) to gain specialist sector exposure. The fund now has a 1.2% portfolio position across several industrial Reits, plus both a central London offices and a student accommodation-focused Reit.
* Shareholders in Value and Income on Friday approved changing the £88m trust to a pure commercial property fund, dropping the dual equity income focus it has held since Oakeshott founded the company 39 years ago. It will be renamed the Value and Indexed Property Income Trust.
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