FCA May Change Property Funds Regime After Redemption Pain

Tom Burroughes

10 July 2020

The , an investment platform in the UK, said.

"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,” Lowcock added.

Fund redemptions and “gating” of investor pull-outs have caused soul-searching around whether regulations are effective, or even whether rules can instil a false sense of security and encourage clients to become complacent.

According to FT Advisor (8 July), the 11 UK property funds available to retail investors, with £12.8 billion of assets between them, were suspended in the third week of March.

The FCA has been watching the development for some time. Earlier this year it fired out a “Dear CEO” letter to the asset management sector, warning about what it saw as governance failings. The FCA’s letter said that open-ended funds can have a liquidity mismatch between the terms at which investors can redeem and timescales needed to liquidate assets; on 30 September 2019 the regulator issued a policy statement on what happens with such funds when assets are illiquid.

Capital-raising
Elsewhere in his speech, the FCA’s Woolard said that the regulator is looking at measures to make it easier for firms to raise capital on the equity market – a concern borne out of how the UK might recover from the pandemic.

“We want rules that balance and meet the needs of both issuers and investors. This is vital. High standards, properly monitored, and if necessary enforced, give investors the confidence to invest. But, at the smaller end of the corporate spectrum, there are companies who do not have the scale to meet these requirements,” he said. “It is unlikely their equity or debt issues would be large enough to support daily trading, and unclear they or their investors would need it. We would welcome a discussion on whether and how such companies could best access capital markets – for example, with periodic disclosures, perhaps with more periodic trading,” he said.

“For larger corporates, who already meet the UK’s super-equivalent premium listing standard, is there a case to simplify the process for follow-on equity issuance while maintaining valuable pre-emption rights and essential disclosures? Equally, away from the equity markets, for premium listed issuers, should we also allow debt issues in lower denominations and therefore make the debt of these corporates more accessible to retail investors?” he continued.

“The FCA cannot create markets. We cannot provide liquidity. But we can work - with others - to ensure we have a framework that accommodates markets in which others wish to participate,” Woolard continued.