Last month’s suspension of M&G’s Property Portfolio fund sent some, albeit fairly minor, shock waves across the UK’s Financial Services sector. Rumours of another industry-wide closure of commercial property funds, similar to that witnessed in the wake of the UK’s Brexit Referendum in 2016, soon spread and numerous other fund managers reacted swiftly to try to quell these, keen to make the point that, for their own funds, it is business as usual.
Having considered the raft of material issued by the various managers, it seems that M&G perhaps faced an unusual set of circumstances largely based on concerns about the impact of BREXIT and holding a relatively small amount (circa 5%) of cash in their fund coupled with some requests for fairly sizeable encashments. Conversely many other managers’ have focussed their comments and responses on the fact they have maintained higher cash holdings, in some cases up to 20%, within their funds to help meet such encashment requests. Indeed, M&G confirmed last week that they are some way down the line to replenishing their cash holding by selling some properties but, not surprisingly, this takes time. As usual, the devil will be in the detail and there are no doubt numerous other factors at play for the fund managers involved.
So, what does all this mean if you hold commercial property funds in your portfolios? Well, if you hold the M&G fund, it could have a practical impact in the short-term, particularly if you are looking to withdraw money from your investments. But, if you’re not looking to withdraw money at this stage, then it may be best to simply sit tight and let the dust settle. We firmly believe that commercial property can be a useful part of a portfolio because it provides strong diversification and therefore can help to ensure that you ‘don’t place all your eggs in one basket’. This is, of course, a generic view and your specific circumstances may require different advice so, if you are affected by this situation and wish to discuss the implications further, please contact me or my colleague, Gary Mothersill.