Martin Vander Weyer Martin Vander Weyer

Take note, Peloton: sweaty blokes make safer marketing

You’ll have had enough of politics and punditry, so let me introduce a non-political City debate (even if rather a technical one) around the M&G Property Portfolio. Founded in 1931, M&G is a trusted brand in collective investment products for middle-class savers but appears to have done what we might nowadays call ‘a bit of a Woodford’: namely, it has temporarily closed its £2.5 billion property fund for investor redemptions, having reaped rich fees in recent years despite what the FT calls ‘substandard performance’.

The fund in question owns a wide spread of UK commercial properties, 40 per cent of them in the struggling retail sector. It is ‘open-ended’, meaning it can issue or redeem shares at any time in response to investor demand and should always hold sufficient cash to meet anticipated redemptions. But a tide of negative sentiment saw big withdrawals from other UK property funds last week — and redemptions from M&G’s fund (which was holding just 5 per cent cash at the end of October) have been frozen, with part of the blame, needless to say, placed on ‘Brexit-related political uncertainty’.

Sceptics challenge the wisdom of selling open-ended property funds to retail investors in any circumstances, given an obvious mismatch of liquidity. The gloomier the property scene and the consumer economy, the longer it will take a fund to convert property holdings into cash, but the more likely that unit-holders will want to get out in a hurry. Indeed, in some ways that’s a dumber model than the doomed (and also open-ended) Woodford Equity Income fund, with its illiquid holdings of small tech stocks that at least carried the possibility of exceptional long-term growth. In simple terms, illiquid assets of any kind should only really be held by small investors via quoted investment trusts whose shares are bought and sold at market prices, rather than issued and redeemed by fund managers.

As to fees, M&G has said it will waive 30 per cent of its charges while the property fund is suspended — whereas Woodford continued charging full fees, and saying nowt, until the game was up.

Already a subscriber? Log in

Keep reading with a free trial

Subscribe and get your first month of online and app access for free. After that it’s just £1 a week.

There’s no commitment, you can cancel any time.

Or

Unlock more articles

REGISTER

Comments

Don't miss out

Join the conversation with other Spectator readers. Subscribe to leave a comment.

Already a subscriber? Log in