ii comments on FCA consultation on open-ended property funds

The industry regulator has proposed new rules to tackle liquidity issues for property funds. 

Today, the Financial Conduct Authority (FCA) announced that it is consulting on proposals to reduce the potential for harm to investors from the liquidity mismatch in open-ended property funds. 

The new rules as proposed would require investors to give notice – potentially of up to 180 days - before their investment is redeemed.

Dzmitry Lipski, Head of Funds Research, interactive investor, says: “While these proposals address the liquidity mismatch in open-ended funds, they come with strings attached. After so many property fund suspensions over the past four years, many property fund investors have seen their assets go into deep freeze. Today’s proposals, with a notice period of up to 180 days, mean that investors will still effectively have to keep their assets on ice for up to six months. 

“Proposals making this a norm, rather than an exception, might spare fund management groups a few blushes, but we question what investors have to gain by sacrificing daily liquidity, given that there is a good structure for investing in illiquid assets already in place – investment trusts. No structure is perfect, and the share price may still come under pressure in a distressed market, and discounts could widen. But on balance we still prefer the closed ended structure when it comes to less liquid assets as it gives instant access to investors’ money.”