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FCA suggests six-month wait for property fund withdrawals

Squaring the circle
August 4, 2020

Investors looking to withdraw money from open-ended property funds would have to wait up to 180 days to get their cash under proposals mooted by the Financial Conduct Authority (FCA).

The FCA is consulting on notice periods of between 90 and 180 days for investors who wish to redeem their money in a bid to combat the liquidity mismatch that has troubled the funds in recent years.

The majority of UK open-ended property funds suspended trading earlier this year because of “material uncertainty” about asset prices amid the coronavirus lockdown, with several having also enacted suspensions after 2016’s Brexit vote triggered a heavy bout of investor redemptions. The FCA has argued that the latest proposals could make suspensions less likely.

Notice periods could have other positive effects. Open-ended property funds may have less of a need for high cash weightings, which can boost liquidity but drag on returns. The regulator also suggested that the proposed changes could "eliminate the potential for some investors to gain at the expense of others" by entering and exiting the funds at tactical moments.

However, the FCA noted that any such change could mean that property fund units no longer qualify to be held in stocks and shares Isas. At a time when investors continue to favour the ability to buy and sell easily, a move to lengthy notice periods could also limit the appeal of open-ended property funds, both in their own right and versus the likes of real estate investment trusts.