UK property funds saw a record £2.2bn of outflows in 2019, with December the second worst month of outflows ever for the asset class, according to data from funds network Calastone.
Calastone said investors withdrew the equivalent of £1 for every £15 invested in the sector last year, as redemptions increased dramatically in the wake of the suspension of M&G's Property Portfolio fund.
Property was the only major asset class to see outflows in 2019, with fixed income, equity and mixed asset funds all enjoying inflows. Property funds have now seen a net £1.2bn of outflows over the past five years - again, the only asset class to lose cash in that period.
In December alone, investors pulled £314.4m from property offerings, the second-worst month on record. In the two days following M&G's shuttering of its property fund, investors withdrew £97m despite other asset managers reassuring investors their funds were unlikely to follow suit.
Calastone's Fund Flow Index for real estate registered 23.9 in the final month of the year, meaning that the value of sales were more than twice the value of buys. The only time real estate funds have seen a larger imbalance was in the immediate aftermath of the EU referendum, Calastone said.
Edward Glyn, head of global markets at Calastone, noted that real estate was not a homogenous asset class, with individual funds differing from each other. While some funds fared better than others, Glyn said "the net selling has been pretty indiscriminate".
The suspension of the M&G offering, he added, "only spurred further outflows from the sector as investors fear their capital becoming trapped in funds unable to trade".
"The open-ended wrapper, and the implication that cash can be withdrawn on demand, are somewhat of an illusion, and nobody should imagine that property is a liquid asset that can be disposed of for cash at a moment's notice," Glyn continued.
"Property is, however, well suited to the long-term investment horizons of people's pension funds, so any changes to the rules that would create more stability for fund managers would be very welcome, enabling them to hold less cash (which drags on performance) and manage outflows more effectively when they happen.
"This almost certainly means an end to the promise of cash on demand under all circumstances, but such a change would be helpful in the long run."
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