Years ago, I used to attend a creative writing workshop at City University in London. One of my fellow students was an American who was writing a lush romance set in Dubrovnik. In the pub, she was wont to ply a romantic story of a different sort.
“I’ve invested in this company that my friend runs in California,” she’d gush. “The guys who run it are amazing. Their idea is fantastic. Anyone who invests is going to make a ton of money.”
Sometimes one of the other students would say, “But I don’t have any money.”
“Borrow the money on your credit card!” she’d command. “That’s what I did. You have to invest in this company or you’re really going to be missing out. It’s incredible what they’re doing.”
As the only person in the group who knew even the teensy-weensiest thing about investment, I’d stare into my pint of beer, ashen-faced, until she went to the toilet. Then I’d go around the table tidying up. “Don’t listen to her,” I’d tell them. “Don’t invest in the company. And for God’s sake, don’t borrow money on your credit card to invest in the company.”
I also tried to dissuade her when she said she was going to borrow more money on her credit card to buy further shares in the company. “You should only really invest money you can afford to lose,” I posited. Airily, she dismissed my concerns.
Aware that I was starting to sound rather boring, I shut up. In fact, such was her conviction and enthusiasm that I even started to question whether she was right, and I was wrong. After all, she knew these people. Nothing ventured, nothing gained, and all that. Maybe I was depriving everyone of a chance to coin it and carve out some writing time. Maybe I should borrow on my credit card and invest in the company. I didn’t. Of course.
Then it was summer. No more classes. When we returned in the autumn, I noticed she no longer mentioned the fabulous investment opportunity. Eventually, I asked her about it.
“Oh God,” she said. “Don’t get me started on that.”
It’s easy to feel smug and ask how she could be so stupid. But in a sense, we are all that woman looking for a great investment opportunity that gives and doesn’t take. We all want to believe we can have the upside without the downside. That emerging markets will rock on forever. Or tech companies. Or whatever.
The recent suspension of the £2.5 billion M&G Property Portfolio is a case in point. M&G said it had temporarily suspended dealing in the fund in the face of “unusually high and sustained outflows”. These coincided with a period of Brexit-related uncertainty and structural shifts in the UK retail sector that made it difficult to sell commercial property. One is tempted to say that the terms “property” and “open-ended” don’t really go together. But, when the returns are flowing in, who cares?
Now it’s time to pay back the metaphorical credit card. Investors can’t get their investment, and M&G is waiving 30% of its annual charge in recognition of this as it continues to manage the fund. Across the sector, there is the fear of a stampede, as investors realise they may be trapped. The lesson from this suspension – for fund managers and investors alike – is surely that everything has a price. And that includes liquidity.
“This will, once again, raise the question of whether illiquid assets should be held in an open-ended structure,” observes Adrian Lowcock, head of personal investing at Willis Owen. “The open-ended structure simply does not work if the investors in it do not share the same long-term perspective.”
Fiona Rintoul is editor-at-large at Funds Europe
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