Illiquid Assets and Open-ended Funds

Of Relevance to:
Managers of open-ended funds

The FCA has published Discussion Paper DP17/1 on “Illiquid assets and open-ended funds”.

DP17/1 concerns itself with the liquidity within a scheme – which in turn would impact upon the ability of investors to redeem their holdings on request – in open-ended funds and, specifically, the liquidity problems associated with investing in illiquid assets e.g. property or unlisted securities.

As far as AIFs are concerned the AIFMD, of course, already requires the AIFM to manage liquidity.

The paper suggests the possibility of developing the regulation of liquidity to support fund managers to meet their liquidity obligations.  Possibilities include:

  • Setting a cap on the amount of illiquid assets held in a fund or setting a minimum amount of cash/near cash that must be held
  • Enhanced disclosure so that investors are aware of issues associated with a fund investing in illiquid assets
  • Issuing guidance on the use of different shares classes for retail and professional investors
  • Developing a secondary market/matching service between sellers and buyers.

The FCA invites comments by 8 May 2017.

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