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https://www.investmentweek.co.uk/news/4027279/mulls-date-suspended-property-fund
It is a sorry state of affairs demonstrating that OEICS are not suitable vehicles for illiquid assets.
If this had been an investment trust the shares would have kept on trading, but probably with a large discount. Sadly investors are trapped and likely to take losses without any escape possible.
The worst outcome is a liquidation of the fund.
Maybe we need a SPAC style investment trust that can swap units for shares. The problem will always be fair valuation of the illiquid assets but a solution is needed to release investors from their limbo.
I was a bit surprised to discover that the M&G property fund is STILL suspended. Starting on 4th December 2019, this suspension pre-dates the pandemic! They have been active selling properties though, including two in January, increasing the Fund’s cash level to 21% (from 4.8% at the start of suspension).
Very true Jatw, lot's of opportunities potentially opening up. Visiting the Edinburgh festival last August, I noticed the M&G logo plastered all over a building site, so they are not just in London. I think they are involved in the build-to-rent sector too. At least one analyst is recommending commercial property trusts as a good asset class for income and long term growth, so we might even see a reversal in the trend (for retail customers selling) by the time the suspension ends.
The WP fund has to find a home for new business coming in from PruFund that is growing the size of the fund. The diverse investment portfolio permits the fund to take some long term but illiquid positions that are expected to generate returns for 20+ years. Ideal for infrastructure and property development.
The OEIC property fund is defined by the flow of money into and out of one class of assets all of which is illiquid, it does not have the resources to invest for the long term it must buy property if the fund is expanding and sell if it is contracting.
Certain types of property are in demand....the 40 Leadenhall site for eco friendly offices fits the bill as old inefficient buildings may be taxed more in future and become more expensive to operate from....although the recent election and change in mood to reinvigorate the North means it might have been better to build inManchester or Leeds....property is a long term game
One interesting aspect of the big property sell-off is that M&G invested £875 million in 40 Leadenhall, in the City of London, just a few weeks before the suspension. This is a development site for two eco-friendly office towers, expected to make a substantial profit when completed late 2023.
This was bought via the "with profits" pension fund though, rather than the property fund: it appears to show a marked difference in attitude towards prospects for commercial property between M&G itself, and it's customers?
Despite completing £50m+ property sales, suspension continues for now.
Market has moved on, looking forward to results due 10th March, with a loadsamoney dividend expected.
Jatw spot on, this was the purpose behind my post, some are holding Aviva when they might be better off in the short term with MNG and also the prospects for growth look better IMHO
Aviva was more similar but inferior to Prudential plc in its global ambitions.
MNG has asset management capability and distribution across EU and UK that is superior to AV. The MNG with profits product has brought in 50bn in the last 5 years, Aviva is closed from a WP perspective.
AV leads MNG on low margin corporate pensions
MNG does not operate general insurance (low margin and cyclical), does not currently sell capital intensive products such as equity release mortgages and annuities.
My conclusion is that MNG is far superior to AV. I have a small Av holding in the hope it will be related.....but it keeps disappointing.....when they bid for Pru back in 2006, AV SP was worth £8 and Pru £6.....now £4 and £16 (adding MNG and Pru)....I would not bet against MNG exceeding the SP and MCap of Aviva in 5 years time.
Some on here have mentioned AVIVA as being similar to MNG, on Friday the former went up by less than 3% whereas MNG were up by more than 6%; we do not need to worry about the property fund restriction any more IMHO.
Housebuilders were the biggest risers on Friday: Berkeley were up over 13%. M&G were unfortunate they couldn't hold off suspension for just 11 more days, but maybe they will now be able to lift it sooner than expected?
BBD you are correct in the numbers. A relatively small part of MNG.
You always hope your investments will be in lucky companies. Luck seems to be in short supply here. The structural problem of illiquid assets backing a daily price is laid bare and there will be regulatory activity but don’t hold your breath it will take a long time.
The whole industry will be affected. Difficult to see what the regulator will do.....if they ban sales to retail customers where do you stop (commodities, small cos) and what do you do about multi asset funds where these assets exist in lower concentrations. More likely to have monthly or quarterly settlement dates for illiquid funds. There may be more problems for those that recommend these types of fund and have not spelt out the risks to their clients.
I doubt the mis-selling lawyers will get too far with the manufacturers.
"But almost 100% of their publicity ?
Which is all bad !"
The publicity also focuses attention on the rather glaring regulation deficit, which may eventually incur unknown future costs and/or restrictions on the fund, but it's surely not really a big deal in terms of M&Gs overall business model and profitability.
M&G are waiving 30% of the fees during suspension of the fund, and fees from the fund were "more than £100m since the Brexit referendum according to FT analysis". https://www.ft.com/content/e8255fe8-181e-11ea-9ee4-11f260415385
Therefore, if the suspension lasts 4 months like last time, that means they lose ((£100m/30 months)*4 months)*30% = £4m (actually "more than" that, as above, but presumably not significantly more). Seems like a relatively small dent in profits?
Anyone buying at current prices would get 7.14% of the purchase price back in dividends, in May, assuming the expected dividends are announced, and the estimated dividend for the following year of 18.5p, if realised, now represents a future yield of 8.38%.
"Can anyone confirm or deny my estimation that M&G's property fund represents less than c. 1.3% of the assets M&G controls?"
Using figures from two recent FT articles gives a much lower number: just over 0.7%.
£341bn under management as of 12 October: https://www.ft.com/content/e1df0da1-5e78-3581-98eb-3271a6d2823b
£2.5bn in property fund as of 8 Dec: https://www.ft.com/content/e8255fe8-181e-11ea-9ee4-11f260415385
n.b. Wikipedia has a lower figure for AUM of £332 billion in assets.
AllAtSea
But almost 100% of their publicity ?
Which is all bad !
Can anyone confirm or deny my estimation that M&G's property fund represents less than c. 1.3% of the assets M&G controls?
Investors in funds that have a narrowly defined focus are going to have to get used to more gating activity. It could happen because of a single currency action, smaller companies....high yield credit.....in our more volatile and connected world events can move more quickly than funds can reorganise their investments.
I bought MNG and AV. today. Although AV. has a property fund, it has more liquidity than most right now.
Back in 2016 after the Brexit vote:
MNG
https://citywire.co.uk/funds-insider/news/mandg-to-reopen-4-1-billion-property-fund/a961934?section=new-model-adviser
AV.
https://citywire.co.uk/funds-insider/news/aviva-to-lift-suspension-of-1-5bn-property-trust/a973041
AllAtSea, IMO you made a good decision picking up shares at a nice discount, good luck.
Given the need for housing in the UK and moves by government to ease the conversion of commercial units into residential property, I wonder if the fall in the value could be overblown.
Must admit, this morning I bought more MNG.
M&G did the same thing in 2016, along with many other fund managers. Holding illiquid assets in an open-ended fund is the predictable cause. In 2016 the fund was suspended for about 4 months, I believe. It's a demonstration of how Brexit causes genuine, unprompted economic fear amongst hard nosed investors, rather than a mere media-induced "project fear" claimed by prominent Brexiteers. M&G stand to lose management fees on the fund.
This suspension happens on property funds quite regularly, it is well advertised in their publicity material.
So the drop in share price should be recovered when sanity returns, but realistically sanity is investing in property, or any potentially illiquid asset, through a trust, not a fund. Woodford inadvertently proved that point, but perhaps M&G property investors were not looking ?
BlahBlahDoh I believe Insurance Property funds include this facility where they can withhold payment for up to 6 months so protecting those who remain in the fund, the risk being that those selling today are getting a higher sum when property values are falling. The Brexit effect could affect attitudes toward property investment by the wealthy from overseas. We also have high street property values crashing. The trouble is that "bad news" can affect sentiment where our sp is concerned. There will be Property Fund managers who are glad that MNG made the move now, as they can adopt the same approach without being so much in the spotlight. IMHO
It's unusual enough to make the national news, being mentioned on Radio 4, for example. The Guardian reported "M&G admitted it had been unable to sell commercial property fast enough to fund the rush for the door by investors [in the Property Portfolio, specifically] , leaving it with no choice but to prevent further withdrawals." Sounds like a valid enough reason, nothing to really panic about. Seems like some major players don't fancy Boris's chances, but I suspect they'll be buying back at higher prices before long.