Property fund suspension: FCA guidance and positive future developments

Several fund managers of open-ended UK commercial property funds announced the temporary suspension of redemption from their funds in early July 2016. They took this action in response to receiving unusually high redemption requests from investors following the outcome of the UK referendum on remaining in or leaving the EU.

Following on from the temporary suspension of these property funds, the FCA issued guidance for fund managers on 8 July 2016. The guidance reminded fund managers that they have a duty to act in the best interests of all investors and must therefore ensure the on-going fair treatment of all investors in their funds. It provided a number of pointers to fund managers to fulfil this duty and stated that they must ensure that:

• assets are valued fairly and accurately;
• subscriptions or redemptions of units take place at a fair price; and
• any assets that need to be disposed to meet an unusually high volume of redemption requests are disposed in such a way that does not disadvantage remaining or new investors.

In exceptional circumstances…

In exceptional circumstances fund managers should consider whether it would be in investors’ best interests to suspend dealing in a fund and the FCA should be contacted ahead of any such suspension. Where fund managers decide to lift the suspension and give investors the opportunity to redeem at a revised valuation of units, managers must ensure that:

• the revised redemption price and opportunity to cancel are clearly communicated to investors who submitted a request to redeem their investment before or during the suspension;
• this communication explains the options available to investors and includes details of how to cancel the redemption requests; and
• investors are given sufficient time to make their decision and seek appropriate advice (this timeframe should take into account the types of investor in the fund and whether communication needs to take place through an intermediary).

Several fund managers have since announced that they have lifted or intend to lift the suspensions of withdrawals from their funds, citing stabilisation of the UK commercial property market. The FCA is holding discussions with the industry, via the Association of Real Estate Funds, on how to handle future mass withdrawals and some market participants are expecting a formal review to follow.