M&G to step up investments in residential, divest commercial assets in the UK

M&G Real Estate has been actively looking for office, retail and logistics assets in Asia as part of an overall strategy to diversify out of the UK. Its target is to have half of its global assets under management outside its home market. Currently, only 25% of its AUM is outside the UK, according to CEO Alex Jeffrey. “We see a lot of investors who want to invest with us outside the UK,” he says.
The company is the property investment arm of British insurance giant Prudential. It was known as PRUPIM until April 2013, when it was renamed M&G Real Estate. As CEO of PRUPIM before that, Jeffrey naturally assumed the top position in the newly named company.
Following the Brexit referendum, M&G Real Estate announced in early July that it was temporarily suspending trading in the shares of the M&G Property Portfolio, a £4.4 billion ($7.8 billion) open-ended fund invested in UK commercial real estate in response to a spike in redemptions by investors who were spooked by the unexpected Brexit vote in June. Likewise, insurance company Aviva suspended trading in its property fund just after the Bank of England announced that it was monitoring investors in open-ended commercial property funds, citing them as a risk to the UK’s financial stability. Trading was also suspended in Standard Life Investment’s UK real estate fund after increased outflows dried up the fund’s cash reserves in early July.
M&G Real Estate had explained that the sharp rise in the number of investor redemptions, owing to the uncertainty sparked by the Brexit vote in June, had led to its decision to temporarily suspend the fund as the best move “to protect the interests of the funds’ shareholders”. The company had also announced that it would review the suspension decision every 28 days.
“We decided it would be sensible to suspend those requests [for redemption] because the underlying property market is still relatively healthy. So it didn’t make sense for us to fire-sell these assets when there are actually buyers out there looking for a good buy, especially when the sterling has fallen 12% and bank interest rates were also down,” explains Jeffrey.
Jeffrey admits, however, that M&G Property Portfolio has sold “a few hundred million pounds’ worth of assets”. Some were sold at prices of about 5% discount to pre-Brexit days while others were sold at prices above pre-Brexit days. This...