By Sinead Cruise
LONDON (Reuters) -M&G Investments is seeking to close its 565 million pounds ($685 million) M&G Property Portfolio due to declining interest in open-ended strategies from UK investors, the company said on Thursday.
Launched in 2005, the fund was set up to provide retail investors access to returns from high quality commercial property that had previously been out of reach to all but the wealthiest of buyers.
But interest in open-ended property fund structures has waned after several bouts of political and economic turmoil, including the global financial crisis, Britain’s vote to leave the European Union and last September’s “mini-budget” chaos that triggered mass exit requests, threatening firesales and the viability of daily traded funds like M&G’s.
For the most part, investors acquiesce with gating and payout restrictions on open-ended property funds to avoid hefty losses on big-ticket, hard-to-sell assets, such as malls and office complexes.
But as interest rates rise and rental growth becomes harder to achieve, investors are choosing to park more of their money in higher-returning assets they can more easily adjust their exposures to.
Upon regulatory approval, an orderly sales programme of the Fund’s assets will begin, with the objective of ensuring that fair market prices are achieved, M&G said.
In the current market conditions, M&G expects it will take approximately 18 months for the majority of the portfolio to be sold and money will be returned to clients when cash becomes available throughout this period.
“The decision has been made in the best interests of all investors,” the company said.
UK commercial property values fell by a further 0.4% in September, the CBRE Monthly Index showed, but UK property funds saw their first net inflows since July 2022 last month, fund network Calastone said on Oct. 5.
“Commercial property values were very hard hit in the second half of 2022, both in the UK and internationally as the market adjusted to the sharply higher interest rate environment,” Edward Glyn, head of global markets at Calastone, said at the time.
“In 2023, values have seen much more modest declines, which has brought a greater sense of stability to the market.”
($1 = 0.8243 pounds)
(Reporting By Sinead Cruise, editing by Karin Strohecker and Iain Withers)