Investors trapped in M&G’s £2.3bn property fund have paid out an estimated £14m in fees over the past 12 months, prompting calls for the asset manager to “share the pain” as the suspension enters its second year.
M&G halted trading in its popular UK property fund in December 2019 after experiencing a surge in redemption requests sparked by poor performance and Brexit jitters.
The suspension was intended as a temporary move to allow the fund manager to sell assets without risking a “fire sale”. But one year on, investors are still in the dark over when they will be able to access their money.
Although M&G is waiving a portion of the fund’s ongoing charges while it is gated, investors have forked out about £14m over the period, according to Financial Times estimates — an amount that some believe is excessive in light of the inconvenience caused to investors.
“M&G structured the fund, so they should bear primary responsibility for this disaster,” said David Morley, a DIY investor who holds £44,878 in the fund. “They should share more of the pain [and] cut fees progressively in line with the duration of the suspension.”
Mr Morley said the fact that investors were being charged fees on the cash portion of the portfolio, which now stands at 14.6 per cent, was particularly unfair. “Why should I have to pay fees on 14 per cent of my investment to sit in cash, when I could put it to work elsewhere?”
Alan Miller, founder of wealth manager SCM Direct and a campaigner for lower fees, agreed that the charges should be lowered to “help clients out of the mess that M&G helped create”. He added: “M&G seem to have a different view of the word ‘temporary’ to most investment clients.”
M&G declined to comment on its fees, which the FT calculated using the fund’s ongoing charge and its average asset pool over the period, taking into account the 30 per cent waiver.
In an update to investors this month, M&G said it had made progress selling properties but did not indicate when the suspension would be lifted. According to documents seen by the FT, the group wants to reach 20 per cent in cash, net of anticipated redemptions, before reopening the fund.
But Ryan Hughes, head of active portfolios at investment platform AJ Bell, said the length of the suspension put pressure on M&G to act. “One year on, investors are still in limbo. There comes a point where the asset manager, regulator and trustees have to decide whether the perpetual rollover of the suspension is in investors’ best interests.”
He added that the decision to reduce fees further was not simple, however, since the fund continues to be actively managed.
The situation comes as the Financial Conduct Authority weighs introducing six-month notice periods for property fund redemptions to reduce the risk of fund suspensions. High-profile suspensions such as those after the 2016 Brexit vote have thrown a spotlight on the liquidity mismatch risk inherent in daily-traded property funds.
All of the UK’s major commercial property funds were suspended in March when the halt in economic activity due to coronavirus made it impossible to value property. Unlike M&G, most funds did not offer partial fee waivers during the suspension period. M&G’s fund suspended before this wave and was the only fund to suspend following a liquidity mismatch.
Get alerts on Property funds when a new story is published