The Financial Conduct Authority (FCA) will issue a joint report with the Bank of England within the next three weeks on the measures it wants to take to ensure investors in open-ended funds are protected if the fund suspends redemptions.
FTAdviser understands that the regulator and the Bank of England are reviewing how client requests for their cash can be reconciled with the illiquid assets held in some open-ended funds.
Most open-ended funds open daily dealing, that is, the ability for a client to withdraw their investment at a day’s notice, even if the underlying assets in which the fund is invested are not listed on a stock market and so take more than a day to sell.
The issue has been placed at the forefront of advisers' minds this year as a result of the suspension of the Woodford Equity Income fund in June, as it was unable to meet redemption requests due to the significant exposure it had to unquoted stocks.
On December 4, M&G suspended dealing in its £2.5bn Property Portfolio fund, as property takes time to sell and it had insufficient cash to meet redemption requests. This is the second time in just over three years that the fund has been suspended for this reason.
The FCA and Bank of England’s joint work on the subject will be published as part of the Bank of England’s Financial Stability report, which is due in December.
Commenting on the suspension of the M&G Property Portfolio fund, a representative of the FCA said: “The decision to suspend was made by the fund’s Authorised Corporate Director, in conjunction with the depositary.
"This is to allow the fund time to raise liquidity levels and preserve value for investors through orderly asset sales.
"The FCA is working closely with the firms involved to ensure that timely actions are undertaken in the best interests of all the fund's investors.”
Industry veterans have been highlighting the incongruity of having illiquid assets in open-ended fund’s with both Peter Hargreaves, who founded the Hargreaves Lansdown platform, and Martin Gilbert, who founded Aberdeen Asset Management both commenting recently that open-ended funds with daily dealing are not the best way to invest in illiquid assets.
david.thorpe@ft.com
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