The future of property funds seems built on shaky foundations as investors pull a record £2.2 billion from the market.
December was the second worst month on record for commercial property fund outflows, according to data from market watcher Calastone.
The monitor says investors clawed back £1 for every £15 invested in property during 2019, while fixed income, equity and mixed funds all benefitted from increased inflows.
Property now stands as the only asset class to lose money over the past five years – with a net loss of £1.2 billion in investment.
Last month, investors took £314 million – which could have been more if M&G’s multi-billion pound property fund had not suspended withdrawals.
Although other funds tried to reassure investors that their property funds were not going to stop withdrawals, £97 million was taken out within two days of the M&G announcement, the Calastone report said.
Calastone head of global markets, Edward Glyn, pointed out that the make-up of property funds varied, so circumstances impacting one may not affect another.
“Net selling has been pretty indiscriminate,” he said.
“The suspension of the M&G offering only spurred further outflows from the sector as investors fear their capital becoming trapped in funds unable to trade.
“The open-ended wrapper, and the implication that cash can be withdrawn on demand, are somewhat of an illusion, and nobody should imagine that property is a liquid asset that can be disposed of for cash at a moment’s notice.
M&G suspension continues
“Property is, however, well suited to the long-term investment horizons of people’s pension funds, so any changes to the rules that would create more stability for fund managers would be very welcome, enabling them to hold less cash, which drags on performance, and manage outflows more effectively when they happen.
“This almost certainly means an end to the promise of cash on demand under all circumstances, but such a change would be helpful in the long run.”
The M&G property fund remains closed to withdrawals until ‘further notice’, says a posting on the firm’s web site.
“ The immediate priority is to raise cash levels in a controlled manner. The fund managers and associated teams are working hard to increase the fund’s cash position and since the end of November, they have exchanged or completed on £70.4 million of assets and a further £67.2 million is either under offer or in solicitors’ hands.,” said the statement.
“Once cash levels have been sufficiently restored, the fund will reopen for dealing.”