Thursday, June 24, 2021
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The Financial Conduct Authority must stick to its guns and reform open ended property funds


When Covid finally recedes into the rear-view mirror, will we build back better, or keep doing the old wrong stuff?

The fund management industry has made a fortune in recent decades raising money from the public to invest in property.

The marketing wheeze was this: you give us your money to invest in buying properties that could take years to build and sell, but we allow you to get your money back with a day’s notice.

For the customer, it seemed too good to be true: access to property development profits without having to tie up our money until the buildings get sold? We’re in.

Trouble is, if something looks impossible, it usually is.

Just like the industry’s “absolute return funds”, which claimed to do well whatever the financial weather, it turned out to be a hoax.

An undeliverable promise.

Twice now — after the global financial crisis and in the Covid market meltdown — open-ended property funds have had to bar investors from withdrawing their cash to avoid a stampede and a firesale of the fund’s buildings.

Three remain shut today, still unable to resolve this fundamental liquidity mismatch being borrowing short and investing long.

Gallingly, it emerged today, investors have also been charged more than £40 million in fees to remain trapped in investments many of them don’t even want.

Now, the Financial Conduct Authority is in the later stages of a review in which it will, hopefully, recommend the false promise is made no more.

It is minded to order that customers can only withdraw funds after a long notice period, to allow an orderly liquidation of assets if needed.

Many in the industry have lobbied hard against the idea, protesting it would put people off.

The FCA should ignore them.

If a product can only be sold on a lie, better it not be sold at all.


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