The FCA has released guidance for fund managers on how to deal with “higher than normal” redemption requests on their property portfolios.
The guidance follows this week’s rash of suspensions on nine property funds, worth around £14bn, following the EU referendum.
The FCA says it expects fund managers to fully understand their responsibilities and the tools they have in relation to the fund they manage and to have “a clear understanding” on how to use such tools.
It says: “It is the duty of the fund manager to ensure that assets are valued fairly and accurately and to ensure that any subscriptions or redemptions of units take place at a fair price. Failure to do so may lead to some investors gaining at the expense of other investors in the same fund.”
When a fund has to dispose of underlying assets to meet “an unusually high volume of redemption requests”, the manager must ensure disposals are carried out in a way that does not disadvantage investors who remain in the fund or for new investors.
Fund managers should also consider whether “in exceptional circumstances” suspending trading in the fund is in the best interest of investors and should contact the regulator before deciding on any suspension.
In case of temporary suspension, fund managers holding a large amount of illiquid assets may need to reconsider the move and allow redemptions at a revised valuation of the units in the fund.
The guidance says: “This redemption price might reflect the price at which illiquid assets can be realised in a shorter than usual timeframe.”
Fund managers should communicate to investors the revised redemption price and the opportunity to cancel the request either before or during the fund’s suspension.
Investors should also be guided on how to cancel redemption requests or what other options they have including having a sufficient time to seek appropriate advice.