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- Liquidity mismatch in authorised open-ended property funds: FCA CP20/15
Liquidity mismatch in authorised open-ended property funds: FCA CP20/15
The UK Financial Conduct Authority (FCA) is consulting, in CP20/15, on liquidity mismatch in authorised open-ended property funds.
CP20/15 primarily affects managers of open-ended UK authorised property funds, constituted as non-UCITS retail schemes (NURS). A new FCA Glossary definition will define a fund predominantly investing in property (FPIP) as a NURS that invests 50% or more of its assets in immovables. It will also affect feeder funds and master funds investing in property, depositaries, distributors and providers that offer access to these funds.
The FCA proposes that property funds operate a notice period before processing investor redemption requests and use the following dealing structure:
- each investor's redemption request is received and recorded, then processed at the end of a notice period. The FCA is consulting on a notice period of between 90 and 180 days;
- an investor will receive the value of their investment, based on the unit price of the fund at the first valuation point following the end of their notice period; and
- redemption requests (which can still be submitted as frequently as daily) will be irrevocable. Investors cannot place orders and withdraw them before the end of the notice period if market conditions change.
The FCA clarifies that fund managers will be expected to treat this as a significant change under the Collective Investment Schemes sourcebook (COLL) and notify investors before any change comes into effect. Fund managers will have to obtain FCA approval for any changes to a fund's instrument and prospectus. However, the FCA is not proposing specific transitional arrangements for the new rules.
The consultation closes on 3 November 2020. The FCA aims to publish a policy statement in early 2021.
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