Written by Harrison Folland 

The FCA has released a statement regarding their consultation on proposals to reduce potential harm to investors as a result of the liquidity mismatch in open-ended property funds.

The risk of potential harm stems from frequent (typically daily) dealing in units in property funds whose underlying assets take longer periods of time to sell.

The FCA consulted on whether property funds should be required to have notice periods before an investment can be redeemed; a period of between 90 and 180 days was suggested. This would reportedly reduce harm to investors and the wider economy, owing to less pressure to sell assets quickly, rather than for maximum value, in order to meet redemption requests.

The FCA has now also published feedback to the consultation from over 70 stakeholders. Concerns were raised over the infrastructure required to support the purchase and sale of holdings by retail investors in line with notice periods. These operational challenges will also feed into the consultation on the Long-Term Asset Fund (“LTAF”).

A decision on the FCA’s policy position will not be taken until Q3 2021 at the earliest to allow feedback from the parallel LTAF consultation to be incorporated into any future proposals. If the FCA does proceed with mandatory notice periods for property funds, an implementation period of 18 months to 2 years is envisaged in order to give firms the time to make any required operational changes.