Fund Management

UK Authorities Consider Fund Redemption Controls - Media

Tom Burroughes, Group Editor, 9 December 2019

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The Bank of England and other authorities are concerned about the trend of open-ended funds suddenly gating redemptions, as has happened in recent days.

Investors may be hit with new restrictions on withdrawing money from property funds because UK regulators are trying to tackle a rush for exits, prompting wider systemic risk concerns, media reports said. 

The recent fund redemption suspensions by M&G and Prudential, following the debacle of Neil Woodford’s now-closed fund, have ignited debate over whether there is a fundamental problem with open-ended funds which hold relatively illiquid assets.

The Sunday Telegraph reported that the Bank of England is acting after a number of funds have suspended redemptions. For example, it is looking at possibly preventing daily redemptions from funds, forcing investors to give weeks’ or months’ notice before they can take out cash.

The central bank will issue a report on certain measures in a week’s time, the ST said. 

The newspaper noted that investors have taken a total of £1.7 billion from open-ended funds in the 12 months leading to October. Property funds have been hit by uncertainties over Brexit and structural changes to the UK bricks-and-mortar market, as seen in the demise of high street shopping centres due to online retailing.

Earlier this year, the temporary closure, and now liquidation, of a flagship fund run by renowned manager Neil Woodford, has also raised red flags about whether there is a mismatch between liquidity of underlying assets and expectations of investors about how fast they can extract cash. 

Another factor in play is that investors have chased after yield in illiquid assets, such as private equity, property and infrastructure, as a result of a decade of ultra-low interest rates.

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