Another suggestion is the introduction of a structured bid-offer-spread at 20% which requires a client to think more about investing for the long run.
Also put forward by commentators is a change of rules to allow a 20% borrowing facility in funds to cover short-term demand for redemptions so that the manager is not forced to sell properties if it is likely to be just a short-term blip.
A drastic measure would be to ban open-ended property funds completely, though that’s unlikely to be popular given the qualities of the asset class as a diversifier and income stream. Philbin too does not see banning funds as a real option.
He remarks: “We are talking about tens of billions of pounds in retail or unitised funds. It is a big part of the market place and it employs and awful lot of people, and when has the FCA ever done anything that would cause such huge conflict or shock?
“There must be some kind of work around that will happen that won’t be a sea change from the current scenario”.
Ryan Hughes, head of fund selection at AJ Bell, stresses that the investment industry has moved to a point where offering daily trading on a fund regardless of the asset class has become the norm.
“While this optically helps customers, it creates other problems where we see high levels of cash held to offset the liquidity risk,” he says.
“The liquidity problem is solved, but the side effect is increased cash drag and poorer performance.
“The ideal scenario may be that the FCA, fund management industry and customers accept that offering daily trading in illiquid assets is not the right approach and ultimately not in investors best interests.
“The trouble is that there is no advantage for any fund manager moving first on this issue. This will only be solved by the FCA taking a strong lead.”
