Bank plans crackdown on property funds
Investors in property funds could be blocked from withdrawing their cash immediately or be forced to take a hit on the money they pull.
The Bank of England and the Financial Conduct Authority said yesterday that they were considering new rules on the liquidity of open-ended funds.
The reforms could stop some investment vehicles that hold illiquid assets from offering investors daily redemptions. The issue has become more pressing for the Bank after the £2.5bn M&G fund made the decision to suspend trading, as it did not hold enough cash to meet “unusually high and sustained outflows”.
Investors in property funds could be blocked from withdrawing their cash immediately or be forced to take a hit on the money they pull.
The Bank of England and the Financial Conduct Authority said yesterday that they were considering new rules on the liquidity of open-ended funds.
The reforms could stop some investment vehicles that hold illiquid assets from offering investors daily redemptions. The issue has become more pressing for the Bank after the £2.5bn M&G fund made the decision to suspend trading, as it did not hold enough cash to meet “unusually high and sustained outflows”.
BoE governor Mark Carney said that funds that offer daily redemption but have in invested in hard-to-sell assets are “built on a lie”.
The Bank’s report, published late Monday (16 December), said: “The Financial Policy Committee judges that the mismatch between redemption terms and the liquidity of some funds’ assets means there is an advantage to investors who redeem ahead of others, particularly in a stress. This has the potential to become a systemic risk.
“As part of the ongoing review by the Bank and Financial Conduct Authority of open-ended funds, the FPC has established that there should be greater consistency between the liquidity of a fund’s assets and its redemption terms.”
The news comes after M&G suspended trading in shares of its M&G Property Portfolio fund, citing “unusually high and sustained outflows”.
The fund, which targets retail investors, has 91 properties across the retail, industrial and office sectors managing assets of £2.54bn as of the end of October.
