PropertyAug 25 2020

No change: managers unperturbed by FCA property rule

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No change: managers unperturbed by FCA property rule
Credit: Chris Ratcliffe/Bloomberg

Fund managers are unperturbed by proposed property fund rule changes which could see investors wait up to six months for their cash, with some saying they are “supportive” and seeing the changes as “beneficial to the sector”.

Richard Peacock, co-manager of the Kames Property Income fund, said the Financial Conduct Authority’s consultation contained “significant benefits” for the sector, and would not lead to a “fundamental change” to the fund house’s property strategy.

He said: “We welcome the FCA’s consultation on potential changes to the structure of open-ended property funds.

“It provides an excellent opportunity for the views of all stakeholders to be heard and to consider how changes can be made to the structure of these vehicles that will improve the outcomes received by investors.”

In the consultation published earlier this month (August 3), the regulator said there was a “liquidity mismatch” between the underlying property held in such funds and the daily basis on which investors bought and sold units.

To move some way towards rectifying this, the regulator has proposed rules which would require investors to give notice — potentially of up to 180 days — before their investment is redeemed.

Commentators initially forecast the rule change could “spell the end” for retail investors in open-ended property portfolios, as the hefty wait could make advisers question the appropriateness of the products for standard investors.

Investment analysts warned the proposed rules were adding to a perfect storm that put property funds at risk of liquidation, as they faced a coronavirus-induced economic slump, already suspended portfolios, and the uncertain fate of many office and High Street buildings.

But Mr Peacock said the rule would encourage investors to commit to investing over a long-term horizon which would, in turn, allow fund managers to hold lower cash weightings, buy and sell assets in a disciplined manner and support the delivery of improved returns for investors.

BMO Global Asset Management also said it was “supportive” of the FCA’s consultation as it ultimately aimed to ensure all investors were treated fairly.

A spokesperson for BMO said: “BMO always seeks to align its product offering to its clients’ requirements, enabling them to invest in a fund structure that meets their needs. 

“This is no different when accessing property, with BMO GAM offering investors the choice to access the asset class through both open-ended and closed-ended funds.”

The fund house added that many of its clients invested in property as a “long-term allocation” so daily liquidity was not always a key consideration.

But LGIM was less happy to throw its support behind the FCA’s proposals. It said: “Clarity is needed on the intended treatment of significant volumes of investment which have been made via platforms, model portfolios and Isas.

“For the regulation to be effective in retaining long term investment capital into UK real estate, it needs to work in harmony with these key elements of investment infrastructure."

Other asset managers with property funds, such as Aviva, Royal London and Aberdeen Standard Investments, said it was too soon to comment on the proposals and they would respond to the FCA’s consultation in due course.

The problem

The FCA is attempting to solve the mismatch between the illiquid nature of property and the liquidity required to provide daily dealing to investors. This discrepancy has seen investors trapped within suspended funds for months.

All ‘bricks and mortar’ open-ended property funds available to retail investors were suspended in the first quarter of 2020. The swathe of closures arose because valuers deemed it impossible to value the property owned by the funds with the same degree of certainty as would otherwise be the case.

It mirrored what happened in the aftermath of the EU referendum in 2016, when funds were forced to gate following a rush of withdrawals. 

imogen.tew@ft.com

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