Funds industry looks for solution to liquidity dilemma
The Investment Association is planning to launch a new fund structure which could be a solution to the liquidity issues which hit property funds in the wake of the Brexit vote and more recently the suspended Woodford Equity Income Fund (BLRZQ73).
The full blueprint for a so-called ‘Long-Term Asset Fund’ will be released later in 2019. Broadly this new class of collective would have the ability to invest in less liquid assets like infrastructure, property or private equity but, crucially, with a move away from offering daily trading in the units of the funds.
The IA also says this fresh type of fund will probably not be offered to ordinary investors without requirements for advice or appropriateness tests.
‘It has become the norm for funds to offer daily trading and one of the challenges for the industry is going to be resetting customer expectations that they can sell their investments immediately,’ says Ryan Hughes, head of active portfolios at AJ Bell.
‘There will need to be effective education around why having a longer notice period for selling investments offers a degree of customer protection when investing in certain asset types. People accept it for certain savings accounts in return for a higher interest rate, so it is certainly possible for investments too.
Hughes says moving away from daily traded funds would allow fund managers to make genuine long term investments because they will have greater visibility of when they might need to sell underlying assets to meet customer redemptions.
‘This has long been discussed for property funds but would suit all kinds of investments such as unquoted businesses, small cap stocks, infrastructure projects and fixed interest, especially high yield bonds,’ he adds.