Suspending a fund can protect investors because fund managers are under less pressure to raise funds via a “fire sale”.
The proposed notice period of three to six months would mean they can plan sales and reduce the likelihood of a fund being suspended, the FCA said.
The watchdog added that its new rules would also allow funds to be managed more efficiently. Managers could invest more rather than holding cash for unexpected cash calls. Real estate funds have been known to hold up to 25% cash, which has seriously weighed on returns.
FCA’s Christopher Woolard said: “Our proposals will reduce the number of fund holds and prevent inappropriate purchases of [property] funds.”
However, many investors would find the proposals unattractive, said Adrian Lowcock of broker Willis Owen. While fund closures can be frustrating, being forced to wait up to six months for savings to be returned wasn’t much better, he said.
Ryan Hughes of broker AJ Bell said notice periods will not end all real estate fund suspensions. Fund managers are already required to close their funds whenever they are unsure of the value of 25% of their portfolio. That could still happen regardless of the new six-month rule.
Dimitry Lipski of fund store Interactive Investor said do-it-yourself investors should use investment trusts to access hard-to-sell assets like property.
“No structure is perfect. The trust’s share price may still fall significantly in a troubled market, but we prefer trusts when it comes to illiquid assets,” he said. he declares.
The FCA will make a decision in 2021 and consult on the proposed rules for three months.