M&G suspend dealings in direct property fund leading to shares dipping

M&G PLC (LON: MNG) have suspended dealings in their direct property fund, which has seen their shares in red.

M&G plc is a savings and investment company with a long-term outlook, bringing the M&G Investments business together under one roof with the UK and European parts of Prudential (LON: PRU).

Shares of M&G trade at 218p, dipping 3.02% on Thursday morning. 5/12/19 11:28BST.

The firm has more than £2.5 billion in assets under management. However, the suspension made was to stem the tide of investor redemptions.

Investors will not be able to buy or sell units in the M&G Property Portfolio fund.

M&G alluded to political and economic uncertainties hindering business, and this has made operating very tough.

The FTSE100 listed company said “unusually high and sustained outflows” have forced the temporary suspension of the funds, blaming Brexit uncertainty and the UK retail sector’s woes for making it difficult to sell commercial property. The fund invests in 90 commercial properties across the UK including retail parks and offices.

“The suspension will allow the fund managers time to raise cash levels to pay redemptions, whilst ensuring that asset sales are achieved at market prices and investors in the Fund are safeguarded,” M&G said.

Cash levels in the M&G Property find are the one of the lowest in the sector, at a rate just above 10% – which will worry shareholders.

Jonathan Miller, head of fund research at Morningstar says: “While bricks and mortar property acts as a portfolio diversifier that also provides an income, we’ve continually flagged there’s a mismatch between its illiquid structure and a daily dealing fund.

“There hasn’t been enough of a buffer here, nor the ability to swiftly sell assets to meet redemptions. Even though M&G is waiving part of the management fee during the suspension period, we can’t be far away from the regulator stepping in regarding issues in this space.”

M&G will waive 30% of its annual charge while the fund is suspended to reflect the fact that investors will not be able to access their money. The suspension will be monitored daily and reviewed every 28 days. M&G said the fund will re-open “as soon as liquidity levels have been sufficiently rebuilt”.

Adrian Lowcock, head of personal investing at Willis Owen says the fee waiver is an appropriate gesture but adds: “Of course this will, once again, raise the question of whether illiquid assets should be held in an open-ended structure. The open-ended structure simply does not work if the investors in it do not share the same long-term perspective. This should serve as a reminder to investors to only consider open-ended property funds if they are unlikely to need access to their money quickly.”

Yesterday, a notable update from Monks Investment Trust saw a huge underperformance reported to shareholders, the firm alluded in similar fashion to M&G about tough market conditions and Brexit complications.

Certainly, it seems that the whole of the UK finance and business is suffering however shareholders of M&G will be concerned about the gloomy updated leading to shares dipping.

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