November’s £251m redemptions were up from £208m in October and £179m in September, marking a record 14th consecutive month of outflows. In the year to end November 2019, retail investors have pulled £1.9 billion from UK real estate funds and £2.5 billion since October 2018.
Last week, the £2.5bn M&G Property Portfolio, one of the UK’s biggest property funds, was suspended after “unusually high and sustained outflows” prompted by “Brexit-related political uncertainty and ongoing structural shifts in the UK retail sector”, the investment manager announced.
Nearly £1bn has been withdrawn by investors from the fund over the last year. M&G admitted it had been unable to sell assets fast enough to meet redemption requests. The fund had been running with 17.5% cash in May but this fell to just 5% at the end of October.
Other UK’s biggest property funds for retail investors have been running down their cash levels to meet redemptions, according to Property Week. Last week, M&G suspended trading in the M&G Property Portfolio fund because its cash levels had dwindled in the face of “unusually high outflows”.
Threadneedle UK Property Fund’s cash weighting has fallen from 11.8% in June to 6.7% in September, the Janus Henderson UK Property PAIF’s cash weighting fell from 24.6% in June to 16.7% in October, and the Aberdeen UK Property Fund’s cash levels reduced from 18% to 11.5% over the same period, according to PW’s calculations.
Edward Glyn, Head of Global Markets at Calastone commented;
“Real-estate funds keep breaking new records for all the wrong reasons as capital continues to leave the open-ended sector. Two-fifths of the UK’s commercial property is in retail, a sector suffering relentless disruption at a time when economic weakness has depressed sentiment around parts of the commercial property asset class. Outflows are the inevitable result. Worse still, real-estate funds are now caught between a rock and a hard place. To cope with consistent outflows, they must hold very high cash balances, of as much as 30% in some cases.
“Paradoxically high cash weightings may themselves be causing further outflows as investors shun the notion of paying management fees on holdings that are not fully invested in their chosen asset class. Property is inherently relatively illiquid, so regulatory change enabling open-ended property funds more flexibility around managing outflows may help, but the timing is bad, as the furore around the collapse of Woodford Investment Management following the suspension of the firm’s main equity funds makes it more difficult to highlight that investor interests are often best served by temporary suspension of trading. In the meantime, investors are voting with their feet.”