Six-month wait for cash if DIY investors sell property funds

Linda J. Dodson

Suspending a fund can protect investors as fund managers are under less pressure to raise cash via a “fire sale”.

The proposed three to six-month notice period would mean they can plan sales and reduce the likelihood of a fund suspending, the FCA said.

The watchdog added that its new rules would also enable funds to be run more efficiently. Managers could invest more rather than holding cash for unanticipated cash calls. Property funds have been known to hold as much as 25pc in cash, causing a serious drag on returns.

Christopher Woolard, of the FCA, said: “Our proposals will reduce the number of fund suspensions and prevent unsuitable 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 was not much better, he said. 

Ryan Hughes, of broker AJ Bell, said notice periods will not end all property fund suspensions. Fund managers are already required to close their funds whenever they are unsure about value of 25pc of their portfolio. This could still happen irregardless of the new six-month rule.

Dimitry Lipski, of fund shop Interactive Investor, said DIY 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 distressed market but we prefer trusts when it comes to illiquid assets,” he said.

The FCA will make a decision in 2021 and in consulting on the proposed rules for three months.

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