FCA proposes 180-day wait for property fund withdrawals
The City regulator is planning to ask investors in open-ended property funds to give 180-day notice before they withdraw money.
In a consultation paper released today, the Financial Conduct Authority said there was a “liquidity mismatch” between the underlying property held in the funds and the almost daily basis in which investors buy and sell units.
Open-ended property funds offer daily redemptions to attract investors, but a number of them suspended withdrawals amid the coronavirus-induced market volatility. There is reportedly more than £12.5bn of investors’ money trapped in suspended open-ended property funds.
Concerns over daily redemptions began when a number of funds were suspended in the wake of the Brexit vote.
The FCA has said that a notice period of up to 180 days would allow a fund manager to plan the sale of assets so it could meet the requested redemptions.
“It would also enable greater efficiency within these products as fund managers would be able to allocate more of the fund to property and less to cash for unanticipated redemptions,” the regulator added.
Ryan Hughes, head of active portfolios at AJ Bell, called the proposal “eminently sensible”.
The FCA said it was concerned that the current structure could disadvantage some investors because it incentivises investors “to be the first to exit at times of stress.”
Hughes said: “Having a notice period of between 90 and 180 days should change this perception and means investors are less likely to get a nasty surprise when they want to withdraw their savings.”
While the notice period won’t end property fund suspensions completely, Hughes suggests it “could give managers greater flexbility to meet redemption requests and should change investors’ perceptions of what to expect.”
The public consultation is open until 3 November and the FCA said it would publish final rules as soon as possible in 2021.
‘We hope the proposed new rules will directly address the liquidity mismatch of these funds making them more resilient during periods of stress, and allowing them to operate in a way that all investors are treated equally,” Christopher Woolard, the FCA’s interim boss said.