FCA reveals new rules for property funds
The Financial Conduct Authority has published long-awaited new rules for funds that invest in property and other illiquid assets.
The watchdog launched a consultation into how open-ended funds deal manage illiquid assets after several property funds closed to investor withdrawals in 2016. The “gating” of those funds came in response to a spike in redemption requests after the UK’s Brexit vote.
The new rules are aimed at ensuring investors have “clear and prominent” information on liquidity risks, the FCA said, by placing new obligations on the funds.
The Financial Conduct Authority has published long-awaited new rules for funds that invest in property and other illiquid assets.
The watchdog launched a consultation into how open-ended funds deal manage illiquid assets after several property funds closed to investor withdrawals in 2016. The “gating” of those funds came in response to a spike in redemption requests after the UK’s Brexit vote.
The new rules are aimed at ensuring investors have “clear and prominent” information on liquidity risks, the FCA said, by placing new obligations on the funds.
The FCA will introduce a new category of “funds investing in inherently illiquid assets”, or FIIAs, under which funds will have to file increased disclosure on how they are managing liquidity and publish liquidity risk contingency plans.
Shares in such funds will also be suspended if an independent valuer believes there is “material uncertainty” about the value of more than 20% of a fund’s assets.
Christopher Woolard, the FCA’s executive director of strategy and competition, said: “We want people to continue to be able to invest in illiquid assets, such as real estate, through open-ended funds but it is important that they are appropriately protected.
“The new rules and guidance are designed to protect the interests of investors, particularly during stressed market conditions. This includes those wishing to redeem their holdings, as well as those wishing to remain invested in the fund.”
Woolard added: “We also want to make it clear that authorised fund managers are responsible for managing the liquidity risk in their funds and acting in the best interests of investors.”
The rules had been expected earlier in the summer, but were delayed after the LF Woodford Equity Income Fund, run by once-revered stockpicker Neil Woodford, was suspended owing to a rise in redemptions.
Announcing the new rules, the watchdog said that suspension “underlines the importance of effective liquidity management in open-ended funds more generally”.
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