The regulator has been applauded for treading lightly on the subject of investors using open-ended funds to access assets that are difficult for managers to trade quickly; namely property, land, infrastructure and unlisted securities.
The examination of the sector was sparked after the panicked suspension of trading in many property funds following the vote to leave the EU last June, but the FCA stopped short of any suggestion of restructuring the current system.
It said: “Such fundamental changes to the framework could trigger fund redemptions, portfolio restructuring, or even fund closures, which at worst might cause some of the risks we were concerned about to happen in reality.”
David Wise, co-manager of the £435m Kames Property Income Fund, said it was a “constructive” approach and welcomed the FCA’s dispelling of investors’ fear, as he sees it.
There had been worries that the involvement of the regulator could lead to excessive rules and restrictions being placed on such funds.
“Their statement dispels many would-be investors’ fears and is a welcome intervention from the FCA. We must welcome the regulator’s intelligent analysis of the issue and we are very much looking forward to engaging with them to look at solutions to prevent this type of situation happening again, as it is not in the interest of either the end investor, the fund managers or the regulator,” Wise said.
On the other side of the argument, Mark Haynes, senior vice president at Cohen & Steers, has long held the view that investors needed to be aware of the liquidity mismatch of using open-end instruments to invest directly in bricks and mortar, and also welcomed the FCA’s probe of the funds while stating real estate securities (REITS) were a better fit for both liquidity and for diversification.
He said: “For the second time in less than a decade, the UK’s open-ended direct property fund sector has revealed its fragility and caught many investors off guard. We believe it is time the asset management industry recognises the critical flaw of these vehicles and follows in the steps of other highly developed investment markets—Australia, the US and Japan, to name a few—and embrace funds that invest in global or European REITs and other real estate securities.”
