FCA looks at illiquid asset funds following Brexit-related property freeze

The Financial Conduct Authority (FCA) has issued a paper on the use of open-ended funds to invest in illiquid assets and the challenges it poses to investors and managers.

The paper looks at the balance of interests between investors who want to withdraw their money and those who want to remain invested. The FCA cited the EU referendum vote on 23 June 2016, when a number of UK open-ended property funds had to temporarily stop redemptions. “If the market for the underlying assets is affected by sudden, severe changes in conditions, leading to price falls that are not fully reflected in fund valuations, some investors might be able to sell their holding for more than it is worth, disadvantaging the remaining investors in the fund,” the FCA stated.

The FCA is gathering more evidence to decide whether changes to its regulatory approach are needed to enhance market stability and promote competition in the sector, while protecting consumers.