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The CP18/27 proposals covered a number of areas:
a). The introduction of a mandatory suspension of funds where pricing is unreliable due to uncertainty over the valuation of underlying assets. This proposal is fraught with problems and has been met with a robust response to the consultation from the industry. We feel that it is unlikely to be implemented as proposed;
b). Improving liquidity management. There are two sides to this. Firstly to require contingency plans to deal with situations where there is a lack of liquidity and secondly to ensure that managers do not simply hold large cash buffers over a long period in anticipation of future liquidity events. This is likely to require considerable thought by managers and there are potential issues in the detail of the proposals to which AREF, INREV, the IPF and potemtially others of whom we are not aware have responded;
c). Increased disclosure and transparency. Broadly this is to be supported, although again there are issues on some of the specific proposals from the FCA.
Other than these specific points, our main disappointment with the proposals is that the opportunity to bring in changes to facilitate the development of less liquid funds for retail investors has been missed. John has been involved in lobbying on this since 2012 when he was still at PwC. We will continue to raise this, and did in the responses to the consultation. We are delighted that in addition to the IPF response, which John drafted, the AREF and INREV responses also suggested the adoption of revised deferral arrangements. This is discussed further below.
Specifically, there were two areas that we believe are important that were not covered in the consultation, and were not therefore covered in specific questions in the FCA document.
Deferral of suspensions
The consultation suggested removing the stigma associated with suspensions, but did not address the alternative of deferrals. Our report for AREF following the EU referendum (see here) proposed that deferrals should be allowed up to 185 days. This would have a number of advantages over full suspension:
a) Redemptions could continue to be made as and when cash is available up to the 185 days;
b) The fund could continue to accept subscriptions. In 2016 when there were net redemptions, there were still investors who thought that it was a good time to invest. Such investors could be matched with those wanting to redeem;
c) It would allow funds to continue daily pricing which would be beneficial for a number of types of investor;
d) It would give managers a clearer idea of demand for redemptions and subscriptions. In a full suspension, the manager reopens the fund with almost no information as to what will happen at that point.
CP18/27 acknowledges that responses to DP17/1 suggested deferred redemptions and notice periods but no explanation is provided as to why this has not been taken forward. We believe that this is an important step to allow development of new types of fund.
We believe that the current borrowing restrictions create anomolous outcomes.