Property investors face block on their cash as Prudential UK Property Fund becomes second fund this week to shut the doors on withdrawals

Investors in property funds face a block on their cash across the board after a second commercial property fund shut the doors to withdrawals today.

In a move that is likely to set off a domino effect of further fund closures, the Prudential UK Property Fund, which is closely linked to the much bigger M&G property fund that suspended withdrawals on Wednesday, has been gated.

Adrian Lowcock, head of personal investing at investment platform Willis Owen, said the suspension ‘could send shockwaves through the sector and have a domino effect on the remainder of the funds’. 

British property funds have lost nearly £5billion this year as the crisis on the High Street has hammered shop valuations and triggered an exodus of investors.

British property funds have lost nearly £5billion this year as the crisis on the High Street has hammered shop valuations and triggered an exodus of investors.

‘There is over £15billion invested in direct property funds available to individual investors, but so far only one group is affected, as the fund has links with the suspended M&G fund and is therefore directly impacted by its suspension,’ he added.

‘However, this is a sector which cannot cope with large withdrawals in a short space of time, and contagion risk is very real. It is yet another reason for investors to very closely consider what investment vehicles they use to access property – for most it simply shouldn’t be in open-ended vehicles.’

The Prudential UK Property Fund was gated as recently as June, although property investors have not suffered a mass freeze-out since the EU referendum of 2016 shocked the nation and ignited fears for the UK economy.

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British property funds have lost nearly £5billion this year as the crisis on the High Street has hammered shop valuations and triggered an exodus of investors.

The combination of savers rushing to withdraw money and poor performance has caused the sector to shrink by £4.7billion to £22.6billion in the first ten months of 2019.

The toll, revealed by the financial data firm Morningstar, emerged after the M&G Portfolio Property fund closed this week for the second time in three years.

The £2.5billion fund was suspended on Wednesday after the manager was unable to sell shops and offices quickly enough to repay backers who were pulling their savings out.

Investment Association UK Direct Property sector
Fund Fund size Dec 2018 (£billion) Fund Size Dec 2019 (£billion) Annual management charge (%) Ongoing charges figure (%) Yield (%)
Aberdeen UK Property 0.5 1.3 0.75 0.89 2.8
Aviva Investors UK Property 1 0.5 0.74 8.27
BMO UK Property 0.3 0.5 0.75 0.83 2.8
Janus Henderson UK Property PAIF 3.1 2.1 0.75 0.84 2.8
Kames Property Income 0.4 0.6 0.75 0.82 5.12
L&G UK Property 2.4 3.2 0.75 2.9
M&G Property Portfolio 4 2.5 0.79 0.79 3.8
Royal London Property 0.4 0.4 0.75 0.8
Standard Life Investments UK Real Estate 2.6 1.8 0.75 0.9 3.29
Threadneedle UK Property 1.1 1.1 0.75 0.8 4.4
Source: Latest available data via FE Analytics 

Analysis from Morningstar shows £1.5billion has been withdrawn since the start of 2019. It said this leaves a total of almost £4.2billion in Property Portfolio and its ‘feeder funds’, which funnel cash to the main fund.

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Withdrawals ballooned as property values across the UK were battered by shoppers shunning the High Street in favour of buying online, as well as uncertainty caused by Brexit and the General Election. 

Separate figures from the Investment Association showed £3.4billion had been pulled by savers from UK property funds so far this year.

M&G said the fund’s suspension was in the best interests of investors because it will mean it can sell assets at a decent price.  But investors could be unable to access it for some time, with M&G freezing the same fund for four months in the aftermath of the Brexit referendum in 2016. 



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