The UK’s Financial Conduct Authority (FCA) said yesterday it is considering a restructuring of property funds in the wake of the covid-19 crisis due to concerns over ‘liquidity mismatches.’
The FCA said it is concerned that UK property funds need to “safely transition” their structures given that property sales are likely to take longer in the current climate.
The UK regulator has already suspended retail property funds after markets were disrupted by the covid-19 pandemic. The FCA said the funds were unable to value the real estate investments on their porfolios.We will look to consult later this summer on finding a way in which funds could safely transition to a structure in which liquidity promises to investors are better aligned with the liquidity of fund assets.”
Chris Woolard, the FCA’s interim chief executive, said: “While suspension is in the best interest of investors, this crisis, like the aftermath of the Brexit referendum, shows the difficulty for these funds of maintaining a promise of daily liquidity to investors when their assets are inherently illiquid.”
“We will look to consult later this summer on finding a way in which funds could safely transition to a structure in which liquidity promises to investors are better aligned with the liquidity of fund assets.”
Adrian Lowcock, head of personal investing at Willis Owen, an investment platform in the UK, said: “The FCA’s move to consult on the future of open-ended property funds is a vital step forward which will help to rebuild trust in the retail funds industry. The issue of putting illiquid investments into liquid daily dealing has been a growing problem.
“The events in the last twelve months have made it all too clear that something needs to be done, and it is a real step forward that the FCA is talking so openly about ensuring these open-ended property funds are converted into better structures. For investors, this change will provide a much more suitable investment for them, and change can’t come soon enough.”