The M&G Property Portfolio is more than doubling its cash cushion in response to investor redemptions following the UK’s vote to leave the European Union.
The £4bn fund has completed £200m of transactions since then, exchanged on £53m, while a further £208m is currently under offer.
This would see the cash holding rise from 6.7 per cent to 15 per cent of the fund. The fund held £295m cash at the time of the referendum.
Fund manager Fiona Rowley says: “We didn’t want to do a fire sale after the vote but now we are seeing more traction in the market as it has got more of the risk off.”
Properties sold include: Waverley Gate, an office in Edinburgh; Trafford Park, an industrial property in Greater Manchester; a portfolio of petrol fillings stations; a B&Q retail warehouse in Sheffield; and The Square, an office in Bristol.
“We are not out of the woods yet as Brexit has not happened yet, but fundamentals in the sector are okay, especially in the industrial and retail sectors for the current vacancy rates.”
The fund is still suspended but M&G says they are “encouraged” by other property funds that have lifted suspensions recently and are “trading very well”.
Rowley says the fund may reach its target of 15 per cent cash by next month, but other factors, such as market liquidity, will be taken into account before the fund lifts its suspension.
Once the fund reopens Rowley says it will focus more on prime locations, which currently account for 35 per cent of the fund.
“We’ve been disposing an office in Edinburgh as its lease was to expire in 2017 and had to be refurbished – we didn’t want to buy more development in the portfolio.”
However, she added “we don’t want to open the fund with too much cash either.”
Rowley says some risk remains for central London properties where yields are under pressure, although they still stand at approximately 5 per cent.
Rowley says transactions will continue in Q4 and low rates environment will continue to support her fund.