The City regulator faced a storm of criticism on Thursday for failing to beef up fund rules after M&G’s dramatic decision to shutter its £2.5 billion property vehicle to thousands of savers.
The funds group blocked savers from withdrawing their cash on Wednesday after it could not sell buildings fast enough to meet the redemption requests.
The Financial Conduct Authority was condemned by some investor groups for failing to overhaul rules for funds that offer savers instant access to their cash but which own hard-to-sell assets.
These have been in the spotlight after the shuttering of Neil Woodford’s funds, which owned similarly illiquid assets.
The M&G debacle also echoes a crisis three years ago when a string of property funds were blocked after the Brexit vote.
These have sharpened questions over the suitability of using illiquid assets in instruments savers treat like an ATM and whether the FCA should have acted quicker to change fund rules.
“We need an urgent response from the FCA to address the fundamental problem of open-ended funds investing in hard-to-sell assets offering daily redemption. So far the FCA has simply tinkered with existing regulation,” said Ian Sayers, chief executive of the Association of Investment Companies.
“It is astonishing that the FCA does not regard how often funds suspend as a measure of regulatory success or failure.”
Alan Miller from SCM Direct said: “Why on earth did the regulator, the FCA and M&G allow these direct property funds to be marketed to retail investors given the fundamental mismatch between the underlying liquidity of its assets and the daily dealing of the fund?”
The FCA is planning to overhaul some of the rules next September with a new illiquid asset fund category to help make investors more aware of the risks.
The regulator is understood to think that there are more benefits keeping daily dealing funds available than getting rid of them.
There are also fears that removing such vehicles for the property industry could lead to questions about scrapping the same structure for other hard-to-sell assets such as high-yield bonds and emerging-market debt.
Mark Northway, the chairman of retail investors’ lobby group ShareSoc, said: “It’s not fair to say the FCA has done nothing but since it’s three years since the last gating and given Woodford has been around their reaction has been on the slow side.”
Aviva, Columbia Threadneedle, Aberdeen Standard Life and Janus Henderson on Thursday said their property funds were in good shape and had enough cash.
Listen to today's episode of The Leader:
