By Sinead Cruise
LONDON (Reuters) -M&G Investments is seeking to close its 565 million pound ($685 million) M&G (LON:MNG) Property Portfolio due to declining interest in open-ended real estate funds 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.
Those events triggered mass exit requests, threatening fire sales and the viability of daily traded funds like M&G's.
For the most part, investors accept 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 the Financial Conduct Authority has signalled alarm at a mismatch between property assets that can take months to buy and sell, and funds marketed to investors which promise regular, and even daily trading.
And as interest rates rise and rental growth becomes harder to achieve, investors are choosing to park more of their money in higher-returning assets that offer greater liquidity.
"It's a shame to see another long-standing property fund exit the sector, but it may not be the last," said Oli Creasey, equity research analyst at Quilter (LON:QLT) Cheviot.
"Will the last one out of daily-dealt property funds, please turn off the lights?," he said.
M&G said it would begin an orderly sales programme of the fund's assets following regulatory approval, with the objective of ensuring that fair market prices are achieved.
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 had their first net inflows since July 2022 last month, fund network Calastone said on Oct. 5.
"In 2023, values have seen much more modest declines, which has brought a greater sense of stability to the market," Edward Glyn, head of global markets at Calastone, said at the time.
Mike Barrie, Director of Fund Management for Legal & General Investment Management Real Assets, said the 1.4 billion pounds L&G UK Property Fund and its feeder fund remained open to investors.
"We remain committed to providing investors access to the sector ... via robust products that are fit for purpose and within the remits of the regulatory landscape," he said.
Columbia Threadneedle Investments also said its two UK open-ended property funds would continue to trade.
"As a leading manager of real estate investments, we are committed to offering our clients choice," the company said in an emailed statement.
The two funds had combined assets under management of 528 million pounds at Sept 30.
($1 = 0.8243 pounds)