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Investors in funds focused on property, infrastructure and private companies will be forced to wait three months to withdraw their money under new rules proposed by the financial regulator.
The move announced on Thursday is designed to avoid liquidity mismatches at funds with hard-to-sell assets that are unable to meet investor requests to withdraw their money, as happened during the 2022 market turmoil after then prime minister Liz Truss’s mini-budget and the 2020 pandemic.
The Financial Conduct Authority said funds with a majority of their holdings in illiquid assets such as property, infrastructure or unlisted companies would no longer be able to offer investors the ability to take their money out daily.
Under the proposals, which the FCA said would bring the UK in line with international standards, investors in such funds would have to give 90 days’ notice before they could withdraw their cash.
“Funds should be clear about whether they offer quick access or are built for longer-term investments like property,” said Michelle Beck, FCA director of markets. “Our rules will help firms make that clearer and give the market more confidence to invest.”
It is the second time in six years that the FCA has made such proposals. In 2020 it considered introducing a minimum notice period of up to six months for investors to take their money out of property funds. But it abandoned this after pushback from the industry and while it waited for international standards from Iosco, the International Organization of Securities Commissions.
In 2022 the sharp rise in bond yields, which made commercial property a less attractive asset and forced many pension funds to sell, led to a surge in redemption requests, prompting property fund managers to defer withdrawals and restrict redemptions.
Former star manager Neil Woodford also came under scrutiny over the suspension of his flagship £3.6bn equity fund in 2019, following a wave of withdrawal requests, over concerns about the liquidity of its private assets as well as the poor performance of larger liquid stocks.
The measures come as more firms seek to sell private asset funds to retail investors through wealth managers and execution-only “DIY” sites. However, concerns have been raised over whether all retail investors understand that they cannot pull out as easily if they want to withdraw their money.
“Rushed sales can lower prices, harm investors who stay invested and put pressure on markets,” the FCA said.
The regulator estimated that 17 funds, including feeder funds, with an aggregate net asset value of about £7.22bn would be caught by the proposals. They would have two years to comply and have to give investors at least a year’s notice. The regulator has invited feedback on its plans until December 11.
Jonathan Lipkin, director of policy strategy and innovation at the Investment Association trade body, welcomed the FCA’s move, particularly its proposals to adjust the rules so that Self-Invested Personal Pensions could continue to invest in funds with illiquid assets.