Investors in M&G’s suspended property fund have paid fees of more than £100m since the Brexit referendum according to FT analysis, despite substandard performance and two trading suspensions in less than four years.
The £2.5bn M&G Property Portfolio this week announced its second “gating” since the 2016 Brexit vote, saying concerns over the UK’s departure from the EU and turmoil in retail had led investors to withdraw large sums, while also making it harder to sell the fund’s assets.
The fund, which is marketed to retail investors, said it would waive 30 per cent of its ongoing charges to clients during the suspension period — a change from its earlier four-month suspension in 2016, during which no fees were waived.
It has returned 3.4 per cent over the past three years and a negative 7.8 per cent over the past year, according to Trustnet data, consistently falling in the bottom quartile of UK property funds. Over five years it has returned 5.5 per cent compared with an average 23.1 per cent for the sector.
Alan Miller, founder of wealth manager SCM Direct and a campaigner for lower fees, said the price cut was not enough. “The price cut by M&G is a step in the right direction but still insufficient,” he said. “Why should an investor wanting to sell but unable purely because the manager has unsuccessfully managed the liquidity of the fund, be forced to pay more than a nominal fee during the suspension period?”
Mr Miller said an exchange traded fund holding UK property shares had returned 23.5 per cent so far this year, compared with the M&G fund’s 8 per cent fall.
The M&G fund held 5 per cent in cash at the end of October, the latest figure available, compared with 14.6 per cent for the rival £1.3bn Aberdeen UK Property fund, which has also experienced redemptions. Investors pulled a net £542m from Aberdeen UK Property in the first nine months of the year, according to Morningstar data.
Neil Woodford, the once-celebrated portfolio manager whose company imploded this year, was heavily criticised for collecting £8m of fees while his flagship Woodford Equity Income fund was suspended.
Open-ended property funds have come under fire from some financial advisers because they offer investors daily liquidity, even though commercial properties can take months to sell. This means large redemptions can force the funds to choose between suspending trading and holding a fire sale of assets. On Thursday Prudential UK, part of the M&G group, suspended a £164m property fund which was wholly invested in the M&G vehicle.
The FT calculated the fees paid by investors in the M&G fund based on its ongoing charge and assets held. The fund has shrunk sharply since 2016, having held £4.4bn of assets at the time of its 2016 suspension.
Not all the fees charged by the fund are retained by M&G, since funds pay other companies for services such as administration and auditing.
Investors in the fund also paid an estimated £70m over the period in separate property expenses, which are used for the day to day costs of running buildings and do not go to M&G. M&G declined to comment.
Ryan Hughes, head of active portfolios at investment group AJ Bell, said: “The fund has had negative correlation to equities and bonds over the last decade and therefore it has been a useful holding in a portfolio, but clearly investors are paying a pretty high price to benefit from this.”
Additional reporting by Attracta Mooney