FCA still scratching its head on property funds
Ryan Hughes, head of active portfolios at AJ Bell, comments on the delay to the outcome of the FCA consultation on open-ended property funds.
The consultation on the liquidity mismatch on property funds, with its proposals to put in place a notice period for redemptions, was controversial not least because of the operational challenges that it clearly presented and the very real risk that it would have potentially caused property funds to once again suspend as investors rushed to exit before any notice periods kicked in. The news that the FCA is delaying the conclusion of the consultation and linking it in to a consultation on Long Term Asset Funds shows just how hard property asset managers have lobbied for the FCA to take a different approach.
However, the initial proposals haven’t been completely discounted and may well still come back on the table when the FCA reports back later in the year. The simple fact that two property funds remain suspended and have been for over a year, while many others hold more than 20% cash to meet potential short-term redemptions still implies that the current structure needs addressing sooner rather than later. Rolling the review into a broader one on long term assets is sensible in that it is looking broader than just property but the thousands of investors that currently have around GBP12 billion in commercial property funds will surely want clarity on the liquidity rules sooner rather than later.