The lang cat consulting director Mike Barrett has said the Financial Conduct Authority’s (FCA) suggestion of a 180-day period for property fund redemptions is “nuclear”.
On Monday morning (3 August) the FCA proposed steps to address the liquidity mismatch in open-ended investment funds, which have led to numerous fund suspensions in recent years. This consultation included an implementation of a possible 180-day notice period for consumers redeeming investments.
In response, Barrett said the notice period feels like a "drastic option" and could potentially cause an issue. "If this happens it effectively kills off the property fund for use by advisers as a solution for all but a handful of retail clients.
"In practical terms, and thinking particularly how the advice sector writes business, I'm not sure many advised clients are going to end up invested in these funds." He said it would be "completely impractical" for different investors to be introduced to the same model portfolio.
He added: "A decent whack of platform flows come in via model portfolios or DFM solutions that have dozens, or hundreds of clients invested in the same portfolio. In this scenario it is difficult to see how these solutions could invest in something that needs individual client notice of withdrawals."
Quilter Cheviot head of property research Oliver Creasey said he does not feel that forcing investors to accept a material delay in redemtions is the solution to the recent suspension of many UK open-ended funds.
"In fact, we would expect that were this rule to come into force it would likely cause investors to withdraw en masse from the sector, which could easily cause another suspension shock."
Elsewhere, the Association of Investment Companies (AIC) chief executive Ian Sayers said the proposals were a step in the "right direction" and was pleased to see that notice periods are a "central element" of the FCA's plans.
"However, the arbitrary 90 to 180-day period means that this will only help to reduce the problems arising from liquidity mismatches, not seek to eliminate them. The FCA acknowledges this and suggests that managers might want to set longer periods," he said.
On the other hand, Sayers asked whether the proposal would be realistic in a "world where daily redemption for open-ended property funds is the norm".
AJ Bell head of active portfolios Ryan Hughes added: "The FCA's proposal to introduce a notice period for withdrawals from open-ended property funds is eminently sensible. It will ensure that property fund managers can manage their portfolios more effectively and give them time to sell properties in a controlled way in order to meet redemptions.
"Perhaps more importantly it should also change the way investors view property funds. Property should be seen as a long-term investment but daily trading on these funds has led to investors assuming they can get their money back whenever they want whereas in reality this has not been the case in many instances. Having a notice period of between 90 and 180 days should change this perception and means investors are less likely to get a nasty surprise when they want to withdraw their savings."
17% increase on last year
From December 2020 to March 2021
Extended to 31 March 2021 for solo-regulated firms
30 days to answer
252 firms pulled out
Go alone for follow the crowd?
Once-in-a-lifetime out, necessities in
Expanding across North West