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| M&G suspends property fund amid Brexit uncertainty and retail crisis - business live | M&G suspends property fund amid Brexit uncertainty and retail crisis - business live |
| (32 minutes later) | |
| Rolling coverage of the latest economic and financial news, as UK asset manager surprisingly freezes a major property investment fund | Rolling coverage of the latest economic and financial news, as UK asset manager surprisingly freezes a major property investment fund |
| M&G investors could be trapped in the Property Portfolio fund for some time. | |
| Laura Suter of stockbroker AJ Bell points out that the fund was closed for two months after the Brexit vote: | |
| M&G’s problems may have been exacerbated by the crisis at Neil Woodford’s asset management empire. | |
| Woodford was forced to freeze his once-popular Woodford Equity Income fund this summer, after a wave of redemption requests. Investors now face massive losses - they could lose two-thirds of their money once the fund is wound down. | |
| The Woodford debacle has highlighted the danger of open-ended funds. Last month, FT Advisor reported there has been “a surge” of property fund redemptions since. | |
| M&G’s move is the first suspension of a major property fund since the panic after the Brexit vote (explained here), says the Financial Times. | M&G’s move is the first suspension of a major property fund since the panic after the Brexit vote (explained here), says the Financial Times. |
| Here’s its take: | Here’s its take: |
| More here: M&G suspends £2.5bn property fund on Brexit and retail woes | More here: M&G suspends £2.5bn property fund on Brexit and retail woes |
| Signs of distress at M&G’s Property Portfolio fund have been building in recent weeks, leading to today’s suspension. | Signs of distress at M&G’s Property Portfolio fund have been building in recent weeks, leading to today’s suspension. |
| Last month, M&G carried out an unusual ‘intra-month valuation update’, having spotted a material (downward) move in its assets. | Last month, M&G carried out an unusual ‘intra-month valuation update’, having spotted a material (downward) move in its assets. |
| This update revealed that M&G’s retail property assets had lost 7.7% of their value, due to a “marked deterioration” in the retail sector. | This update revealed that M&G’s retail property assets had lost 7.7% of their value, due to a “marked deterioration” in the retail sector. |
| The company says the rise of internet shopping, and the collapse of several high street chains, were to blame: | The company says the rise of internet shopping, and the collapse of several high street chains, were to blame: |
| More here.... | More here.... |
| In October, fund industry tracker Morningstar spotted that £2bn of cash had left property funds this year -- with M&G losing £750m alone. That was an “echo” of the stampede after the Brexit vote, Reuters reported. | In October, fund industry tracker Morningstar spotted that £2bn of cash had left property funds this year -- with M&G losing £750m alone. That was an “echo” of the stampede after the Brexit vote, Reuters reported. |
| The BBC’s Simon Gompertz has also heard that the cash reserves in M&G’s property fund have run rather low, forcing today’s suspension. | The BBC’s Simon Gompertz has also heard that the cash reserves in M&G’s property fund have run rather low, forcing today’s suspension. |
| Readers might also remember that a swathe of property funds were temporarily frozen after the EU referendum in 2016. | Readers might also remember that a swathe of property funds were temporarily frozen after the EU referendum in 2016. |
| Two weeks after the vote, around £18bn was locked up as asset managers barred the doors, to give time to sell office blocks and shops in order to meet redemption requests. | Two weeks after the vote, around £18bn was locked up as asset managers barred the doors, to give time to sell office blocks and shops in order to meet redemption requests. |
| The fundamental problem is that these funds are open-ended, allowing a retail investor to put money in and take it out again as they like. Until too many of them want to cash in at once. | The fundamental problem is that these funds are open-ended, allowing a retail investor to put money in and take it out again as they like. Until too many of them want to cash in at once. |
| Merryn Somerset Webb, editor in chief of Money Week, says there is a structural problem here: | Merryn Somerset Webb, editor in chief of Money Week, says there is a structural problem here: |
| The BBC’s Simon Gompertz is tweeting a handy explanation to M&G’s shock property suspension: | The BBC’s Simon Gompertz is tweeting a handy explanation to M&G’s shock property suspension: |
| Shares in M&G have fallen by 2% since it suspended the Property Portfolio fund. | Shares in M&G have fallen by 2% since it suspended the Property Portfolio fund. |
| M&G is also waiving around a third of the management fee it charges investors -- to address the frustration they’ll feel about being locked into the Property Portfolio. | M&G is also waiving around a third of the management fee it charges investors -- to address the frustration they’ll feel about being locked into the Property Portfolio. |
| It says: | It says: |
| This surprise suspension will allow M&G breathing room to raise cash (by selling property) so it can pay people who want to redeem their investment in the Property Portfolio. | This surprise suspension will allow M&G breathing room to raise cash (by selling property) so it can pay people who want to redeem their investment in the Property Portfolio. |
| It says: | It says: |
| NEWSFLASH: One of Britain’s biggest fund managers has just suspended dealing in its multi-billion property fund. | NEWSFLASH: One of Britain’s biggest fund managers has just suspended dealing in its multi-billion property fund. |
| M&G has blamed Brexit for the temporary move, saying political uncertainty has made it hard to sell property assets to meet redemption requests from investors in its Property Portfolio. | M&G has blamed Brexit for the temporary move, saying political uncertainty has made it hard to sell property assets to meet redemption requests from investors in its Property Portfolio. |
| The crisis on the high street -- with many retailers shutting stores -- is another factor. | The crisis on the high street -- with many retailers shutting stores -- is another factor. |
| In a letter to investors, M&G says: | In a letter to investors, M&G says: |
| What does it mean? | What does it mean? |
| The Property Portfolio holds 91 commercial properties across the UK, and manages assets of £2.54 billion. | The Property Portfolio holds 91 commercial properties across the UK, and manages assets of £2.54 billion. |
| Funds of its type take money from investors, invest it in commercial property assets, and pay returns from rental payments and capital appreciation. | Funds of its type take money from investors, invest it in commercial property assets, and pay returns from rental payments and capital appreciation. |
| As M&G points out, those properties are hard to sell quickly (unless you accept a firesale price). So if too many investors want to withdraw their money at the same time, the fund can struggle to meet those redemptions. | As M&G points out, those properties are hard to sell quickly (unless you accept a firesale price). So if too many investors want to withdraw their money at the same time, the fund can struggle to meet those redemptions. |
| Back on trade.... Donald Trump has told reporters in London that talks with China are going “very well”. | Back on trade.... Donald Trump has told reporters in London that talks with China are going “very well”. |
| During a press event with German chancellor Angela Merkel, Trump said: | During a press event with German chancellor Angela Merkel, Trump said: |
| That’s a more upbeat assessment than yesterday, when the president hinted that he might not sign off a deal for another year. | That’s a more upbeat assessment than yesterday, when the president hinted that he might not sign off a deal for another year. |
| This is likely to reassure markets; a cynic might question whether Trump is keen to reverse yesterday’s selloff with some good publicity. | This is likely to reassure markets; a cynic might question whether Trump is keen to reverse yesterday’s selloff with some good publicity. |
| But the BIG headlines are on Trump calling Justin Trudeau “two-faced” after video emerged showing Canada’s PM laughing about Trump with Boris Johnson, Emmanuel Macron,Mark Rutte and Princess Anne. | But the BIG headlines are on Trump calling Justin Trudeau “two-faced” after video emerged showing Canada’s PM laughing about Trump with Boris Johnson, Emmanuel Macron,Mark Rutte and Princess Anne. |
| Boom! Sterling has now hit its highest level against the euro since May 2017. | Boom! Sterling has now hit its highest level against the euro since May 2017. |
| General election speculation has driven the pound up to €1.182 against the single currency, a 31-month high. | General election speculation has driven the pound up to €1.182 against the single currency, a 31-month high. |
| Traders are increasingly betting on a Conservative victory next week. The pound is also benefitting from the fact that this morning’s service sector data was less bad than feared (but really not good!). | Traders are increasingly betting on a Conservative victory next week. The pound is also benefitting from the fact that this morning’s service sector data was less bad than feared (but really not good!). |
| We should remember, though, that one pound was worth €1.30 before the Brexit referendum.... | We should remember, though, that one pound was worth €1.30 before the Brexit referendum.... |
| Ian Strafford-Taylor, CEO of currency and payments firm Equals, suggests the pound is still vulnerable to political drama: | Ian Strafford-Taylor, CEO of currency and payments firm Equals, suggests the pound is still vulnerable to political drama: |
| Newsflash: Rather fewer jobs were created at American companies last month than expected, a new report shows. | Newsflash: Rather fewer jobs were created at American companies last month than expected, a new report shows. |
| The ADP payroll, which measures US employment, has risen by 67,000 in November, much weaker than the 140,000 which Wall Street expected. | The ADP payroll, which measures US employment, has risen by 67,000 in November, much weaker than the 140,000 which Wall Street expected. |
| October’s payroll has been revised lower too, to 121,000 from 125,000. | October’s payroll has been revised lower too, to 121,000 from 125,000. |
| This might be a sign that the US economy is losing momentum; we’ll get a better picture on Friday, when the broader Non-Farm Payroll survey of US labor is released. | This might be a sign that the US economy is losing momentum; we’ll get a better picture on Friday, when the broader Non-Farm Payroll survey of US labor is released. |
| Sterling is continuing to climb, and is now up a whole cent today at $1.309. | Sterling is continuing to climb, and is now up a whole cent today at $1.309. |
| That’s a new seven-month high against the US dollar, the strongest position since May 7th. | That’s a new seven-month high against the US dollar, the strongest position since May 7th. |
| Aviation News: Budget airline Ryanair is planning to close two bases, due to the ongoing delays to Boeing’s 737 MAX jet. | Aviation News: Budget airline Ryanair is planning to close two bases, due to the ongoing delays to Boeing’s 737 MAX jet. |
| Ryanair says it now expects to only receive 10 737 MAX aircraft in time for next summer, not the 20 previously expected. That means it will carry a million fewer passengers -- 156m, not 157m -- and force it to shutter operations at Nuremberg and Stockholm Skavsta. | Ryanair says it now expects to only receive 10 737 MAX aircraft in time for next summer, not the 20 previously expected. That means it will carry a million fewer passengers -- 156m, not 157m -- and force it to shutter operations at Nuremberg and Stockholm Skavsta. |
| Boeing is still trying to get the 737 Max recertified, following the two fatal crashes blamed on a flawed anti-stall mechanism. | Boeing is still trying to get the 737 Max recertified, following the two fatal crashes blamed on a flawed anti-stall mechanism. |