Key Takeaways
- • The U.K. Financial Conduct Authority (FCA) launched a consultation proposing a minimum 90-day redemption notice period for retail alternative asset funds that invest primarily in illiquid assets.
- • The FCA proposes aligning minimum redemption requirements for these funds with the rules applied to long-term asset funds, and limiting how often managers can redeem or cancel investors' units.
- • Investors would be allowed to revoke redemption requests during the notice period, but only with the fund manager's permission.
- • The FCA says the changes aim to reduce forced asset sales, liquidity-driven suspensions, and the holding of excess cash, and to give the market more confidence in investing in funds that support private markets.
- • The consultation closes Dec. 11, and the FCA says the proposals would align its rules with international liquidity standards.
Summary
The U.K.'s Financial Conduct Authority (FCA) has launched a consultation on proposed changes to retail investment fund rules intended to ensure that redemption terms for alternative asset funds better reflect the liquidity of their underlying portfolios. The proposals focus on funds that invest primarily in illiquid assets, such as property, and are framed as part of an effort to support retail investment in alternative funds.
Among the measures, the FCA proposes a minimum 90-day redemption notice period and the alignment of minimum redemption requirements with the rules for long-term asset funds. It also proposes limiting the frequency of dealing days on which fund managers can redeem or cancel investors' units. Investors would be permitted to revoke redemption requests during the notice period, provided the fund manager agrees.
According to the regulator, the longer notice period would give managers more time to sell assets to meet redemptions. This, the FCA argues, would reduce the risk of forced asset sales, liquidity-driven fund suspensions, and funds holding excess cash to meet regular redemption requests. The reforms are also intended to provide greater certainty about redemption terms and to help firms match investors with suitable products.
Michelle Beck, director, markets at the FCA, said in a release that "Funds should be clear about whether they offer quick access or are built for longer-term investments like property." The regulator said the rules would help firms make that distinction clearer and give the market more confidence to invest. The FCA also stated that, if adopted, the proposals would align its rules with international liquidity standards. The consultation is open for comment until Dec. 11.
Among the measures, the FCA proposes a minimum 90-day redemption notice period and the alignment of minimum redemption requirements with the rules for long-term asset funds. It also proposes limiting the frequency of dealing days on which fund managers can redeem or cancel investors' units. Investors would be permitted to revoke redemption requests during the notice period, provided the fund manager agrees.
According to the regulator, the longer notice period would give managers more time to sell assets to meet redemptions. This, the FCA argues, would reduce the risk of forced asset sales, liquidity-driven fund suspensions, and funds holding excess cash to meet regular redemption requests. The reforms are also intended to provide greater certainty about redemption terms and to help firms match investors with suitable products.
Michelle Beck, director, markets at the FCA, said in a release that "Funds should be clear about whether they offer quick access or are built for longer-term investments like property." The regulator said the rules would help firms make that distinction clearer and give the market more confidence to invest. The FCA also stated that, if adopted, the proposals would align its rules with international liquidity standards. The consultation is open for comment until Dec. 11.
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