Investors in property funds should wait up to 180 days before they can get their money back to avoid widespread suspensions in rocky markets, Britain’s Financial Conduct Authority proposed on Monday.
UK-regulated open-ended property funds offer daily redemptions to entice investors, but many remain suspended after market volatility in March in response to the pandemic, trapping more than $7.5 billion (5.7 billion pounds) in assets.
Policymakers have warned that property funds should not be viewed like a bank account that can be tapped at will, given they contain “illiquid” assets such as commercial real estate that can take several months to sell even in normal market conditions.
Concerns over daily redemptions began when several property funds were suspended after Britain voted in June 2016 to leave the European Union.
Property funds with assets worth at least $7.5 billion were suspended again after volatility in markets in March due to the pandemic.
The FCA is proposing that property funds publish a “notice period” or pre-agreed gap of betweeen 90 and 180 days from the request for a redemption to the return of cash. It would also mean that property funds don’t have to hold as much cash as they do now, the FCA said.
The public consulation is open until Nov. 3 and the watchdog said it would publish final rules as soon as possible in 2021.