M&G Freezes Flagship Real Estate Fund as Withdrawals Mount
Comment of the Day

December 06 2019

Commentary by Eoin Treacy

M&G Freezes Flagship Real Estate Fund as Withdrawals Mount

This article by Lucca de Paoli, Jack Sidders and Nishant Kumar for Bloomberg may be of interest to subscribers. Here is a section:

The asset management industry has been rocked by fears over daily-dealing funds that allow investors easy entry and exit, but hold assets that take far longer to sell. M&G’s freeze follows the shock collapse of star U.K. stock picker Neil Woodford’s empire this year, amid tougher scrutiny of managers who have been pushed to seek harder-to-sell assets in their hunt for yield.

“Woodford and M&G are different scenarios, but both point to the same thing,” Ben Yearsley, investment director at Shore Financial Planning said. “You shouldn’t hold illiquid assets in
open-ended funds.”

GAM Holdings AG, H20 Asset Management and Lime Asset Management Co. have also grappled with liquidity crises in the past two years.

The M&G money pool was one of seven major U.K. funds that halted trading in the aftermath of the 2016 Brexit vote, when spooked investors demanded their money back. In a rush to sell properties quickly in order to raise cash, many funds disposed of buildings that remained attractive to buyers even after the Brexit vote, such as London offices or warehouses.

That’s left funds like M&G with a higher relative exposure to retail properties that have proven tough to sell. Retailers have been closing stores and seeking rent cuts in an attempt to compete with online rivals, sending retail property values plunging.

Eoin Treacy's view

Pensions hold large weightings of fixed income so they can match assets with future liabilities. That means they need to have a better return on their other holdings to ensure the total grows enough to succeed in meeting those liabilities. The low interest rate environment over the last decade, and more, has represented a major challenge for the sector and its effect is cumulative. The longer interest rates stay low the greater the pressure on pensions to find alternative ways of boosting returns.

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