Frozen £2.5bn property fund could be 'first domino to fall'
UBS (UBS) thinks withdrawals from other UK property funds could be suspended in the wake of M&G Investments’ (MNG.L) decision to gate a £2.5bn fund.
M&G said on Wednesday it was suspending withdrawals from its Property Portfolio fund after “unusually high and sustained outflows.” The money manager blamed Brexit uncertainty and the decline of the retail sector in the UK.
UBS analysts Michael Werner and Federico Braga said in a note sent to clients late on Wednesday that the M&G fund could be the “first domino to fall.”
Seven property funds were gated in 2016 following the Brexit referendum. Werner and Braga said the pattern that forced those suspensions could repeat itself again.
“At the time, Standard Life was the first to gate its UK property fund,” the analysts wrote. “This announcement drove accelerated outflows from other UK Property funds as clients sought to avoid being locked into the funds, leading to other UK fund managers to gate their UK property funds.”
The analysts said it is “difficult” to guess which funds are most at risk, as it’s not clear how much cash each fund has on hand to cover withdrawals.
However, Werner and Braga wrote: “We argue the funds most at risk for gating have daily liquidity, poor 3- and 5-year performance track records, and experienced a sharp decline in year-to-date fund size.”
Funds that fit the bill include: the Threadneedle UK Property Authorised Investment Fund, which has shrunk by 20% so far this year and ranks in the 33rd percentile among peers for 3-year performance; and the Aberdeen UK Property Fund, which ranks in the 7th percentile among peers on a 3-year basis and has shrunk by 33% so far this year.
A spokesperson for Columbia Threadneedle said its UK Property Authorised Investment Fund currently holds 10% of assets in cash and has “comfortably met all client redemption requests” this year.
The spokesperson said the fund has a “diversified and balanced property portfolio” and has had “a number of days more recently whereby we have witnessed net investor inflows.”
“Prudent liquidity management has always remained key to our investment philosophy,” the spokesperson said. “All property funds are managed differently and we continue to monitor client and market sentiment with a view to ensuring good customer outcomes.”
A spokesperson for Standard Life Aberdeen (SLA.L) said its Aberdeen UK Property Fund held 14.6% of assets in cash at the end of November. The spokesperson said the fund had a “risk-off stance until we have greater clarity on the outlook for the UK economy in the context of Brexit and the upcoming general election.”
“We will continue to monitor the situation closely and in particular any impact M&G’s decision has on investor sentiment towards the sector,” the spokesperson said. “Our prime focus as always is to act in the best interests of investors.”
UBS’ Werner and Braga said in their note: “Even well performing funds with strong liquidity positions can face gating should client outflows accelerate in the near-term.”
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Oscar Williams-Grut is Yahoo Finance UK’s City correspondent. He covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.
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