Urges M&G to reopen its suspended £ 2.1 billion real estate fund

Lord Oakeshott has asked M&G to provide investors who are trapped in the suspended £ 2.1 billion Real estate portfolio for more than a year with an end date when they can access their money.

The fund posted a loss of around 11% last year as commercial property values ​​were hit by the coronavirus. His manager Justin Upton has sold holdings to raise the vehicle’s cash level. However, this was hampered by the collapse in real estate transactions during the pandemic.

The M&G real estate portfolio ceased trading in December 2019 after a surge in redemption requests hit the sector as investors feared the upcoming Brexit date.

Funds in the peer group forced to block withdrawals in March when the coronavirus arrived. The vast majority of the funds have since reopened, with Aviva and Thread needle Lifted the suspension of their UK real estate funds in September and L & G and Aberdeen Standard following lawsuit in October. However, the M&G portfolio remains blocked to this day.

Seagrove Bay’s Lord Oakeshott, the Liberal Democrat peer chairman of commercial property manager Olim, told the Times: “M & G has to time limit this sad saga, otherwise the Financial Conduct Authority should feel its collar. Temporary suspensions should not last longer than three months. M&G must set a fixed and final date of March 31st for captured Shareholders to receive their money. “

There was also some criticism of M&G for continuing to charge the fund during its suspension, which the Times The calculations over the period were £ 12-14 million.

The asset manager alleged that it reduced its fees by 30% “in recognition of the inconvenience” during the suspension. In the fund’s accounts for the twelve months to the end of September, released last week, M&G said the fund’s active management had “continued to improve the performance of the portfolio” while its then co-managers looked at the impact of the fund Coronavirus pandemic. M&G noted that the managers continue to collect rents, negotiate leases and pay distributions.

One of the co-managers, Fiona Rowley, terminated last Juneand leaves Upton as sole lead manager.

However, many investors will no doubt question the value of this active portfolio management. The fund has now posted negative returns over a five-year period and, in M ​​& G’s own words, “has not achieved its current goal of achieving a combination of capital growth and income over a period of five years or more”.

M&G has at least now been able to sell a number of fund holdings, raise £ 395.8m and increase the liquidity holdings to 18.1% after paying a dividend on November 30th. This is a 4.8% increase on suspension and will increase to 25.5% when nine additional sales of £ 157.1 million are completed.

Investors hope this will mean lifting the suspension of trading in the fund, but M&G has refused to set a time frame for it.

The most recent round of real estate fund suspensions in late 2019 highlighted the problems of keeping illiquid assets in open-ended funds with daily liquidity. Similar crises, in which funds were closed because they could not make large redemptions, were seen shortly after the vote on the Brexit referendum in June 2016 and during the financial crisis.

The Financial Conduct Authority is currently advising on ways to resolve this problem.

How M & G is repositioning its real estate portfolio

In a breakdown of the fund’s asset allocation, the co-managers sold properties on High Street, preferring to maintain retail parks which they believe are better protected from the rise of e-commerce.

‘For a retailer, a warehouse in a well-located retail park near major metropolitan areas provides easy access to deliver goods, accommodates full pick-up space (and meets short-term social distancing requirements), while meeting customer needs for easy access and parking , click and collect and come back – the comparison with Main Street is strong, ”wrote Rowley and Upton in the update.

They added that business park owners also have more control over rents and tenant mix than on Main Street, where ownership tends to be more fragmented.

In offices where future demand will be challenged as people get used to working from home, the fund is underweight in central London and overweight in the rest of the country, but has reduced its exposure to the sector overall .

The couple also claimed to have participated in a number of Reits (retail investment trusts) to get involved in a specialized sector. The fund now has a portfolio position of 1.2% in several industrial equestrian centers, as well as a central London office and student housing-oriented Reit.

Urges M&G to reopen its suspended £ 2.1 billion real estate fund

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