UK fund suspensions raise questions about daily cash calls - watchdog

By Huw Jones

LONDON, March 19 (Reuters) - Although this week's
suspensions of UK property funds were due to fallout from
coronavirus rather than cash calls, they raise "legitimate
questions" about offering daily redemptions, the Financial
Conduct Authority said on Thursday.

Several property funds that offer daily redemptions have
suspended themselves after valuers said it was not possible to
adequately price the real estate assets they contain.

"We are now in the midst of an unprecedentedly difficult
time for funds, as for others," Edwin Schooling Latter, director
of markets for the Financial Conduct Authority, said in a call
to the Investment Association on Thursday.

Other funds were suspended last year, notably the flagship
equity fund run by former star stockpicker Neil Woodford which
had too many requests for daily redemptions and was unable to
sell illquid assets fast enough. It closed four months later.

"Recent experiences may help rational and well-advised
investors to recognise that daily redemption funds are unlikely,
however, to be the safest or most profitable way of investing in
less liquid assets."

The FCA and the Bank of England have already announced they
are assessing possible regulatory changes so that redemptions
periods at funds are better "matched" with how fast they could
sell assets. They are expected to give an update in June.

"In our view, the case for preventing the emergence of new
open-ended funds with asset-liability mismatches and without the
right tools to manage them is strong," Schooling Latter said.

"But we need to be sensitive in addressing risks in existing
funds."

How long redemption periods should be for funds that hold
illiquid assets was unclear, but should not necessarily be as
long as it takes to sell the most illiquid asset, Schooling
Latter said.

"We would like an open debate with stakeholders about where
the right balancing point lies," he said.

Regulators are also looking at ways to measure liquidity in
funds and the U.S. regime based on 'bucketing' assets into four
categories offers a "useful experience", he said.

(Reporting by Huw Jones; editing by David Evans)