The Financial Conduct Authority (FCA) has responded to the panic gripping UK property funds with a guideline issuance on blocking investor redemptions.
Having launched a review into the structuring of open-ended property vehicles, as outlined by CEO Andrew Bailey on 5 July, the watchdog has subsequently published its recommendations on temporary dealing suspensions.
Highlighting in particular the circumstance of having to sell underlying assets in order to meet redemption requests while preventing a knock-on to remaining unit holders, the FCA circular said fund providers must ensure that:
· The revised redemption price and the opportunity to cancel are clearly communicated to investors who have submitted a request to redeem their investment before or during the fund’s suspension.
· This communication explains the options that are available to investors and includes details of how to cancel the redemption requests.
· Investors are given sufficient time to make their decision and to seek appropriate advice. This timeframe should take into account the types of investor in the fund and whether communications to these investors need to take place through an intermediary.
The note added: ‘If a fund has to dispose of underlying assets in order to meet an unusually high volume of redemption requests, the manager must ensure these disposals are carried out in a way that does not disadvantage investors who remain in the fund or are newly investing in it.
‘In exceptional circumstances, fund managers should consider whether it would be in investors’ best interests to suspend dealing in a fund or range of funds. We request that managers of authorised funds contact us in advance of any proposed suspension.’
The guideline issuance rounds up a torrid week for UK property funds, with Standard Life Investments, Aviva Investors and M&G Investments among a raft of houses impacted by a dash for the door overwhelming their funds’ underlying liquidity.
A wave of redemption requests subsequently forced the temporary suspension of dealing in a number of UK property OEICs, while many of their closed-ended equivalents endured marked share price slides.
Aberdeen Asset Management and Legal & General Investment Management took a different course of action to their peers, opting instead to offer investors a discount on any redemptions rather than implementing blanket ‘gating’.
The FCA added that it ‘will continue to liaise with the funds as they keep the situation under review’.