Interactive Investor

ii comments on Bank of England property fund proposals

11th December 2020 14:09

Jemma Jackson from interactive investor


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We think a longer redemption period may help restore investor confidence, here's why.

The Bank of England’s Financial Policy Committee Financial Stability Report, published today, states the importance of introducing notice periods for open-ended property funds as proposed by the FCA, noting that “there would be benefits from extending notice periods to at least as far as the range proposed in the consultation.”

interactive investor, the UK’s second largest direct to consumer investment platform, is encouraged by the emphasis on ‘at least as far as the range’ proposed in the FCAs consultation on the liquidity mismatch in authorised open-ended property funds. This range was between 90 and 180 days.

In its response to the FCA’s consultation last month, interactive investor argued that giving fund managers the flexibility to set their own redemption period of between 90 and 180 days could create confusion for investors. 

Interactive investor believes that a longer redemption period may help restore investor confidence in the real estate funds sector as seen in Germany, where the regulator Bafin requires investors to give 12 months’ notice to redeem units in open ended property funds. 

It added that should FCA decide that 180 days is a reasonable compromise, a formal post-implementation review should be incorporated into the policy statement, with the specific aim of reviewing whether 180 days is working. 

Moira O’Neill, Head of Personal Finance, interactive investor, says: “Time and again, open-ended property funds have failed the stress test. There’s no guarantee that the FCA’s proposals will solve the issue entirely and we would suggest investors consider alternatives. We also believe that a longer notice period than 180 days would do more to help investor confidence.

“While the FCA’s consultation proposals go some way to resolving the liquidity mismatch, the role investment trusts can play is still being overlooked. Trusts come with issues of their own, but they are still a better option, in our view, for investing in illiquid assets like property. Yet they are mentioned only once in the consultation paper by the FCA, and only in passing, as an alternative means of accessing property. It does raise the question of whether the FCA is overlooking the existing secondary market in property investment trusts – funds are not the be all and end all.”

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