Cohen & Steers welcomes FCA’s proposals on open-ended property funds
Cohen & Steers has welcomed the Financial Conduct Authority’s (FCA) announcement on proposals to reduce the potential for harm to investors from the liquidity mismatch in open-ended property funds.
Marc Haynes, head of institutional business, EMEA, at Cohen & Steers, says: “We have long called for the FCA to take action on the liquidity mismatch inherent in open-ended UK property funds, so we welcome the spirit of today’s consultation and its proposals. Although overdue, the consultation and the measures outlined should, on the whole, increase investor protection and mend some of the reputational damage caused by the wave of lock-ups we have seen over many years. Today’s announcement has also undoubtedly paved the way for the REIT funds market in the UK, as we believe that investors who prefer the flexibility of a liquid vehicle are better served by property securities funds which invest in publicly listed real estate companies and REITs that trade intraday.
“Today’s proposals bring the UK closer in line with international standards. In the US, for example, there have long been strict limitations on daily-dealing open-ended mutual funds investing in illiquids and as a result, over nearly 50 years and across many thousands of funds, there have hardly ever been instances of fund suspensions. Similarly in Germany, where they experienced locks ups to bricks and mortar property funds during the 2008 Great Financial Crisis, the regulator moved quickly and decisively to implement new rules not dissimilar to what is being considered by the FCA today and by all accounts it has been very successful.
“The proposals outlined may not stop lock ups altogether, but we would imagine they would become less frequent and potentially shorter in duration. We believe that the proposals outlined should most importantly ensure that investors will be treated more fairly enable fund managers to better focus on generating returns rather than managing liquidity. It will also hopefully bring an end to charging investors high fees on large cash buffers. The major question which now remains is whether the proposed 90 or 180 day notice periods for redemptions are sufficient. We would urge the FCA to learn from its counterparts globally to ensure the best outcome for end investors.”