The below is not meant to be investment advice specific to any individual; it is for informational purposes only.
In an echo of the Woodford affair from earlier this year, one of Britain’s largest fund managers has blocked investors from withdrawing their money. The affected fund - the M&G Property Portfolio Fund – has about £2.5 billion in it and much of it is owned by everyday UK investors like you.
The Key Problem
The M&G Property Portfolio Fund owns, as the name suggests, property. A significant proportion of the fund is invested in retail property like shops on the high street and shopping centres. The likes of Debenhams and Wickes pay rent to the fund. But as those shops struggle in the face of online competition from Amazon and others, their ability to pay their rent is imperilled - and, therefore, the property becomes worth less.
Investors, having sussed out that the property within this fund (and others) is declining in value, have asked for their money back. Therein lies the problem: the property is owned in a ‘fund’ that, in normal times, promises investors their money back within a few days. And yet selling a shopping centre clearly takes more than a few days. The result is to tell investors they can’t immediately have their money back; and hence the fund gets ‘suspended’.
The fundamental problem is not, per se, in the underlying investments, i.e. the value of the property itself. Buying retail property at the current market price may well be a good idea in the long-term. But rather the problem for investors is in the structure of the fund. It is a fund that promises the investor its money back on demand yet owns something that is impossible to sell that quickly. The mismatch of expectations is the real problem.
What can be learnt
Scott Tindle, CFA is the Founder & Director of Wealth Management at Tindle Wealth Management
For the avoidance of doubt, clients of Tindle Wealth Management are not currently invested in the M&G Property Portfolio Fund nor have they ever been.
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