Crackdown on withdrawals
Bank may tighten rules to protect property funds
Options: Bank of England may take action (pic: Terry Murden)
Investors may face tight restrictions on withdrawals from property funds amid fears that worries over their performance will lead to a dash to take cash out and destabilise the system.
Action may be taken to protect investors in funds, particularly those which have invested in more illiquid – or harder to sell – assets after M&G noticed “unusually high outflows” of £1 billion from its £2.5 billion UK Property Fund.
It was forced to suspend trading in order to protect the fund to ensure there was sufficient cash to meet investor demands.
The outflows are spreading concerns of a contagion similar to that which hit the sector in 2016 when many property funds suspended trading following the Brexit vote.
The Bank of England is now considering a number of options, according to The Sunday Telegraph, including a limit on daily withdrawals after it emerged this weekend that it followed a wider selling by fund managers within the wider M&G empire.
Prudential UK, the life company owned by M&G, sold off £124.5 million worth of units between May and October in response to the poor performance of the fund.
Yesterday it was revealed that M&G’s life and pensions arm has suspended a £164m property fund.
More than £4.5bn has been pulled from UK open-ended property funds over the last year, according to Morningstar data.
Aberdeen’s £1.3bn property fund recorded outflows of £31m on Wednesday, the day after M&G’s announcement, matching withdrawals for the previous four months combined.
The fund held 14.6% of assets at the end of November, leaving it with an estimated £160m in liquidity following Wednesday’s redemptions.
The Financial Conduct Authority in September announced new rules that will come into force next year requiring property funds to suspend dealing if there is “material uncertainty” over the value of 20% of their assets.