FCA has updated on its August 2020 proposals to reduce the potential harm to investors from the liquidity mismatch in property open-ended funds. It had proposed that funds should have notice periods before an investment could be redeemed, to mitigate the fact that frequent dealings is not aligned with the time it takes to sell the funds’ underlying assets.
FCA received many responses, many raising operational challenges.
FCA has noted that it needs to solve these issues in its newly proposed Long Term Asset Funds, and so is now consulting on these funds, and will return to the issue of liquidity in property funds later – not before Q3 2021.
The consultation on LTAFs proposes an open-ended fund structure for funds able to invest in assets like venture capital, private equity and debt, real estate and infrastructure. FCA’s plan is that the funds would allow investors to invest with more confidence in less liquid assets through these specially designed funds. Some investors prefer the open-ended structure so they have the opportunity to put money in or take it out at the net asset value, but this can lead to liquidity issues if the fund were to offer daily dealings. LTAFs would therefore have longer redemption periods, high levels of disclosure and specific liquidity management and governance features.
FCA also hopes that DC schemes would be interested in LTAFs as an investment.
Comments are due by 25 June.