In the last seven days, M&G and Canada Life Asset Management have suspended and set out plans to close their respective UK open-ended direct property vehicles due to a surge in investor redemptions and dwindling demand.
These two are the latest in a string of open-ended property fund closures in recent years, including Aviva UK Property and Aegon Property Income, which are still being wound-up more than two years on.
M&G suspends open-ended UK property fund ahead of closure
The FCA opened a consultation in 2020 into the future of open-ended property funds in a bid to reduce the potential for investor harm resulting from the vehicles' liquidity mismatch issues. However, the regulator has not yet outlined its conclusions or published a policy statement.
In late 2021, the financial watchdog introduced the LTAF, a new category of authorised open-ended fund designed to efficiently invest in long-term and illiquid assets, and has since set out its final rules to allow a degree of retail investor access to the structure.
Following the news of the closure of M&G Property Portfolio on Thursday (19 October), M&G global head of product and distribution Neal Brooks told Investment Week the firm had found "no alternative" offering investors a comparable product to the open-ended property fund structure.
No room for LTAFs, for now
Investment platform providers also told Investment Week they are still reluctant to launch products with notice periods, as current market infrastructure is based on daily dealing.
Emma Wall, head of investment analysis at Hargreaves Lansdown, said the firm had reviewed LTAFs across the business, including input from the policy team, fund research and asset allocation.
"At this stage we do not feel the product is sufficiently mature or transparent for us to include in our solutions, but we are committed to analysing new funds as they come to market and will review our position in a year's time," she said.
LTAF retail extension receives mixed reaction as platforms weigh challenges
AJ Bell maintains its position that LTAFs present a range of challenges, noting that retail investment in illiquid assets "comes with a considerable degree of complexity", including questions about how consumers can be adequately protected.
interactive investor declined to comment on plans to adopt the structure, and reiterated its comments from June that customers "have tended to opt for investment trusts over funds when it comes to illiquid assets, but that does not mean that there is no room for LTAFs on a selective basis".
Fidelity's personal investing platform did not respond to a request for comment. Bestinvest continues to only provide investments with daily dealing vehicles, including OEICs, ETFs, investment trusts and direct UK and US equities.
"LTAFs are regarded as higher risk products with illiquid underlying assets and longer redemptions periods, requiring appropriate risk warnings," a spokesperson for Bestinvest said.
"They are therefore more appropriate for consideration where professional advice over their suitability is given. Bestinvest clients can however still access asset classes such as property, infrastructure and private equity via listed investment companies, where there is market pricing and no lock-up period."
FCA unveils final rules to extend LTAF distribution to retail investors
Meanwhile, Rachel Wheeler, CEO for Waystone's global management company solutions business, told Investment Week the firm had been informed that "platforms are evolving to support funds that do not have daily liquidity enabling them to support LTAFs".
In June, the FCA said market participants had raised concerns that due to the structure's notice period of at least 90 days, units in LTAFs would not be qualifying investments for a Stocks and Shares ISA under the current ISA regulations.
"Some market participants fed back that ISA 9 eligibility could help facilitate retail widening access, and consumer demand would be greatly reduced if the LTAF was not ISA eligible," the FCA said.
Other concerns raised in the policy statement included Consumer Duty making it unlikely for platforms to promote or sell LTAFs to their target markets due to the increased cost they would incur in meeting the information obligations of the duty.