Saturday, August 13, 2022

FCA postpones decision on property funds until Q3 2021


A liquidity mismatch occurred as fund managers quickly ran out of cash to satisfy withdrawal requests

The Financial Conduct Authority (FCA) has postponed its decision on property funds until Q3 2021 at the earliest.

The delay shows how hard it is to resolve issues that arise when investors suddenly leave open ended property funds.

Last year many well-known funds closed due to the volatility they experienced from the pandemic.

A liquidity mismatch occurred as fund managers quickly ran out of cash to satisfy withdrawal requests. This happens in open-ended funds that invest in assets that take more than a day to sell.

To solve the problem the FCA consulted on forcing property fund investors to wait at least 90 days to get their money.

But critics said the idea posed serious operational challenges to the property funds and could be counterproductive.

Now the FCA has published the feedback of 70 responses to the consultation and an update on its next steps.

It said respondents raised concerns about the operational challenges for fund managers and other firms. They also had worries about how the purchase and sale of holdings by retail investors will work with notice periods.

The regulator has also published a consultation on Long-Term Asset Funds (LTAFs) as some of the same operations issues arise here.

It said: If we do proceed with applying mandatory notice periods for property funds, we will allow a suitable implementation period before the rules come into force, approximately 18 months to 2 years, to allow firms to make operational changes.

Commenting on the development AJ Bell head of active portfolios Ryan Hughes said: The news that the FCA is delaying the conclusion of the consultation and linking it in to a consultation on LTAF shows just how hard property asset managers have lobbied for the FCA to take a different approach.

However, the initial proposals haven’t been completely discounted and may well still come back on the table when the FCA reports back later in the year, he said.

He said that the simple fact that two property funds remain suspended and have been for over a year, while many others hold more than 20% cash to meet potential short-term redemptions still implies that the current structure needs addressing sooner rather than later.


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