FCA mulls fund ‘side pockets’ to limit damage of Russian assets
The city watchdog is mulling whether to authorise so-called ‘side pockets’ in retail funds to allow fund managers to separate hard-to-sell Russian and Belarussian assets from their core investments.
The Financial Conduct Authority is consulting with fund managers on the new structure, which would allow new retail investors to enter the fund without exposing themselves to the Russian assets.
Fund managers have been scrambling to dump Russian investments but a combination of shuttered markets in Moscow and lack of buyer interest have made the assets hard to offload.
The proposed structure would allow existing investors in the funds to redeem the value of their investments while the Russian assets would remain in the side pocket, in many cases marked to zero following the fallout of Russia’s invasion of Ukraine.
The FCA said it was now consulting with fund managers on the date of a rollout and how to ensure it does not encourage speculative new investment at the expense of investors.
“The use of side pockets by the authorised fund manager would be optional, based on acting in the best interests of each fund it manages,” the FCA said.
“The side pocket proposals would be limited in scope to assets that are illiquid as a result of the Russia/Ukraine war. The precise scope would be determined as part of the consultation.”
Investment Association boiss Chris Cummings welcomed the move from the FCA.
“Side pockets potentially offer a solution for funds suspended due to the crisis in Ukraine,” he said.
“Ensuring they work appropriately and all investors are treated fairly will be paramount and we look forward to participating in this consultation.”