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Investors may have to wait to get cash out of Woodford-style funds

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17/12/2019
Investors could be prevented from withdrawing money from illiquid funds at short notice unless they accept a discount on the value of their investment under new proposals from the Bank of England.

The plans follow a joint review of open-ended funds by the Bank of England and the Financial Conduct Authority after some funds blocked investors from getting their hands on their money.

Initial findings of the review found a “mismatch between redemption terms and the liquidity of some funds’ assets”.

Many funds hold hard-to-sell assets such as commercial property or unlisted shares but offer investors the option of daily redemptions.

The Bank of England said under the current system investors are at an advantage if they withdraw their money ahead of others during times of stress.

In June, investors in once-renowned manager Neil Woodford’s flagship fund were blocked from making withdrawals after the fund was suspended over concerns it could not meet the high number of redemption requests.

One of the issues Woodford faced was difficulty selling unlisted assets, which made up a significant proportion of the fund.

Then earlier this month, M&G pulled up the gates on its Property Portfolio fund after it experienced high outflows at a time of Brexit uncertainty and retail downturn.

The Bank of England said the proposals would help ensure greater consistency between the liquidity of a fund’s assets and its redemption terms.

The FCA said it would use the conclusions of the review, which will be released in 2020, to form new rules for open-ended funds.

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