By Huw Jones
LONDON (Reuters) – Funds that offer daily redemptions to investors may have to restructure to better reflect the time it takes to sell illiquid assets like property, Britain’s Financial Conduct Authority said on Wednesday.
Retail property funds have been suspended because of their inability to value the commercial real estate they hold after markets were disrupted by the COVID-19 pandemic.
The FCA and the Bank of England have already proposed principles on how to deal with “liquidity mismatches”, or where investments in a fund cannot be sold fast enough to meet daily redemptions without incurring losses in a market crisis.
Retail property funds also had to be suspended in the immediate aftermath of Britain’s vote in June 2016 in favour of leaving the European Union.
FCA interim Chief Executive Chris Woolard said there has been considerable discussion about how to ensure redemption arrangements offer a fair deal to those remaining in the fund as well as those who wish to exit.
“While suspension is in the best interest of investors, this crisis, like the aftermath of the Brexit referendum, shows the difficulty for these funds of maintaining a promise of daily liquidity to investors when their assets are inherently illiquid,” Woolard told an Investment Association online event.
“We will look to consult later this summer on finding a way in which funds could safely transition to a structure in which liquidity promises to investors are better aligned with the liquidity of fund assets.”
Such funds worry about their ability to continue attracting investors if they have to ditch the promise of daily redemptions.
(Reporting by Huw Jones; Editing by Jan Harvey)
