Debate: After the M&G property fund suspension, should illiquid assets be banned from funds?
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After the M&G property fund suspension, should illiquid assets be banned from funds?
Yes says Ryan Hughes, head of active portfolios at AJ Bell.
In simple terms, offering daily dealing in a fund when the underlying assets can’t be sold in the same timeframe is asking for trouble. Most of the time, it might not be a problem. But when market conditions deteriorate, this mismatch comes back to bite, and investors are the ones who suffer.
The simple remedy is to stop these funds being offered with daily dealing, something that the Financial Conduct Authority did not do in its recent proposed rule changes following a three-year review. There is no first mover advantage for asset managers to do this, even if they know that they should, and therefore it can only be led by the FCA.
While the FCA is trying to reduce the stigma of a fund being suspended, telling an investor that they can’t have their money back for an undetermined length of time because it’s in their own best interests is a message that will inevitably be received badly.
In my view, it’s time to grasp the nettle and say that illiquid assets are not suited to daily dealing funds.
No says Chris Cummings, chief executive of the Investment Association.
Allowing funds to invest in illiquid assets can help deliver long-term income and returns, both to retail and institutional investors. The money invested benefits the whole economy, including through infrastructure such as schools, hospitals, road, and rail.
So the real question is: how can we ensure that funds work effectively, and customers can continue to access the benefits of professional management and investing at scale?
In a daily-dealing environment, suspension is an important way to protect investors to ensure fairness at times of stress in the fund. But we also need to think imaginatively, particularly given that many investors have a time horizon of decades.
This means recognising that daily dealing may not always be the right approach for all fund strategies.
Together, our industry has proposed a solution in the shape of our Long-Term Asset Fund. This has consumer protection at its core, and provides an additional route for patient capital to flow into the economy.