Investors in a £750m real estate fund have been told they must wait three months to withdraw money from the vehicle as it carries out an emergency sale of property assets.
The change in policy at M&G’s offshore UK property fund – which affects only institutional investors – is the latest sign of a growing crisis gripping the real estate sector.
Mark Dampier, of financial adviser Hargreaves Lansdown, warned last night that the move could herald a more widespread panic. With listed property shares in freefall, many investors have been withdrawing money from unlisted vehicles.
The move by M&G comes after weeks of rumours that asset managers were preparing to impose notice periods for redemptions from property funds. The Guernsey-based fund had almost all its money in direct real estate, causing liquidity problems, given the difficulty of selling properties quickly to generate cash.
In a letter to investors on Thursday, M&G said the measure was designed “to manage liquidity in a controlled and prudent manner . . . by allowing the fund manager 90 days to sell properties to release proceeds to investors”.
There is technically a permanent 90-day notice period on the institutional unit classes of M&G’s fund, although this is “waived” as long as inflows exceed withdrawals. Many other funds can withstand a greater level of withdrawals because they keep substantial investments in cash and shares.
For example, the £2.1bn New Star UK Property Unit Trust, one of the largest vehicles in the sector, has 26 per cent of its money in “liquid” assets. Even then, however, funds forced to sell property shares could face big losses in the current market.
Analysts expect more such funds to limit redemptions.
Until recently, property unit trusts were seeing unprecedented demand from investors, prompting some comparisons with the appetite for dotcom stocks in the late 1990s. Since July, however, many of the vehicles have seen net outflows.