The FCA has said it will publish a discussion paper on the workings of open-ended real estate funds in 2017 as regulatory scrutiny on the post-Brexit property saga steps up.
A regulatory response had been seen as inevitable following a summer which saw a raft of open-ended UK property funds gate investors after a surge in redemption requests. At the time, FCA chief executive Andrew Bailey questioned whether open-ended property funds should be allowed to price and trade daily, prompting speculation over some form of intervention.
Speaking at the Wealth Management Association (WMA) annual summit today (November 9), Megan Butler, FCA executive director of supervision - investment wholesale and specialists, confirmed the watchdog was holding discussions with asset and wealth managers, and advisory firms, about the governance and oversight of open-ended funds.
"We are also looking at the suspension process as well as its impact on investors," Ms Butler said. "Our aim is to publish a discussion paper on this in the new year."
She urged wealth managers and advisers to "think carefully" about how to manage the risks of investing client assets in open-ended portfolios, given the potential mismatch between daily dealing facilities and the illiquidity of underlying assets.
She said: "Our understanding is that only a small number of WMA members are likely to have clients involved in daily dealing funds, but if your business has invested in this market we encourage you to think carefully about how you manage long run risk here."
Six open-ended vehicles gated to investors this July following a spike in outflows following the UK's vote to leave the EU. M&G, Henderson, Columbia Threadneedle, Aviva Investors and Standard Life Investments were the largest funds to suspend trading.
However, with trading conditions having quickly eased, Aviva Investors is the only fund house not to have subsequently reopened its fund.
Asset managers have argued in favour of retaining the flexibility to gate investors and make price adjustments in times of stress, and said the open-ended structure remains appropriate for retail investors.
The Investment Association has backed this view. The trade body has said it was seeking to commission a study into the saga as part of its work with the Financial Stability Board (FSB) - a collective of financial regulators - on liquidity mismatches.
Additional reporting by Damian Fantato
