FCA proposes structure shake-up to tackle illiquid fund flaws
Britain today put forward a new long-term asset fund structure to invest in illiquid assets, such as real estate and infrastructure, following a series of high-profile suspensions.
Illiquid assets typically offer better long-term returns but come with higher risk. They can be difficult to value or sell in a crisis, making it hard to meet redemption requests.
Many British funds investing in property froze during both the pandemic and the referendum vote in 2016.
The Financial Conduct Authority (FCA) said it would consult on a new long-term asset fund (LTAF) with longer redemption periods and high levels of disclosure.
These rules would allow such funds to secure “an appropriate level of consumer protection and to address specific risks related to investments in illiquid assets,” according to FCA’s CEO Nikhil Rathi.
The FCA said the funds, which could also invest in venture capital and private equity, would be aimed at institutional investors such as company pension funds.
The regulator also separately proposed replacing the daily redemption notice period for existing open-ended property funds with notice of up to six months.
It said it would not make a decision on the property funds until later in the year when it has studied feedback from the LTAF.
Managers of the property funds may be given up to two years to implement the changes.