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FCA proposes 'side pockets' to allow re-opening of Russia funds

FCA proposes 'side pockets' to allow re-opening of Russia funds
  Firefighters work in the rubble of a residential building hit by rocket debris in Kyiv, Ukraine

The Financial Conduct Authority has begun discussions with stakeholders about the potential for UK retail funds to make use of ‘side pockets’ to accommodate for sanctioned assets.

The regulator is exploring the use of pockets to allow fund managers to separate Russian and Belarusian assets from the funds’ other core investments.

This would allow new investors to enter the fund without getting exposure to Russian assets and existing investors to redeem the rest of their investment, ultimately allowing funds to end their current suspension.

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A number of funds with exposure to Russia and Belarus have suspended for dealing since the invasion of Ukraine, due to global sanctions making it near-impossible to offload Russian assets, as well as concerns over valuation. 

In a statement yesterday (March 16), the regulator said it will consult the industry to ensure that these side pockets can treat existing, redeeming and subscribing investors fairly, and do not encourage speculative new investment at the expense of existing investors.

The use of these pockets would be optional, and would only be used for funds that have been impacted by the war.

A number of fund houses closed Russia-exposed funds in the days after Russia invaded Ukraine, including Blackrock’s Emerging Europe Fund and Jupiter’s Emerging European Opportunities Fund.

UK funds with highest exposure to Russia 

Fund

Exposure

Pictet Russian Equities

100%

iShares MSCI Russia ETF (Blackrock)

98.93%

HSBC MSCI Russia Capped ETF

98%

Liontrust Russia

97.34%

HSBC Russia Equity

95.46%

JP Morgan Russia

92.8%

Invesco Emerging European

78%

Barings Eastern Europe Fund

70.2%

JP Morgan Emerging Europe Equity

68.8%

Blackrock GF Emerging Europe

66.64%

ASI Eastern European Equity

65.73%

Schroder ISF Emerging Europe

63.1%

Jupiter Emerging European Opportunities 

60.99%

Fiera Magna Eastern European 

57.6%

Source: FE Fundinfo

sally.hickey@ft.com