The Financial Conduct Authority (FCA) has set out clearer expectations for asset managers overseeing long-term investment funds, including funds investing in assets such as property. The proposals aim to improve investor confidence and support investment in private markets.

New 90-Day Notice Period for Investors

Under the proposed rules, investors would need to provide 90 days’ notice before withdrawing money from affected funds. In return, investors should have greater certainty about when they will receive their money.

The changes are intended to help investors understand from the outset how quickly they can access their funds and whether a particular investment is suitable for their financial needs and expectations.

Addressing Liquidity Risks in Long-Term Funds

Some existing funds allow investors to withdraw their money daily without a notice period, despite holding long-term assets that may take time to sell.

During periods of market stress or volatility, these funds may face difficulties meeting withdrawal requests because they do not have sufficient cash available. This can result in the suspension of payments to investors.

Some funds also hold additional cash to meet potential withdrawals, leaving less capital invested in the assets the funds were designed to hold.

Supporting Orderly Asset Sales

When funds need to raise cash quickly to meet withdrawal requests, managers may be forced to sell assets at reduced prices. These rushed sales can harm investors who remain invested and create additional pressure on financial markets.

A 90-day notice period would give fund managers more time to sell assets in an orderly manner. This could reduce the likelihood of liquidity-related suspensions and help funds manage withdrawals more effectively during periods of market uncertainty.

Transition Period for Existing Funds

Existing funds would have two years to comply with the new requirements. They would also need to provide investors with at least one year’s notice before implementing the changes.

This transition period is intended to give fund managers time to adapt their operations and ensure investors are informed about the revised withdrawal arrangements.

Alignment with International Liquidity Standards

The FCA’s proposals would bring the UK into line with new international liquidity standards for open-ended funds, strengthening the approach to managing liquidity risks in investment products that hold less liquid assets.

Michelle Beck, Director of Markets at the FCA, said funds should clearly explain whether they offer quick access to investors’ money or are designed for longer-term investments, such as property.

The FCA believes clearer expectations will help firms communicate their fund structures more effectively and give the market greater confidence to invest in long-term assets.

What the Proposed Rules Mean for Investors

The proposals aim to make investment terms more transparent, improve liquidity management and reduce the risk of funds being unable to meet withdrawal requests during periods of market stress.

For investors, understanding the notice period and the nature of a fund’s underlying assets will be increasingly important when deciding whether a long-term investment is appropriate for their needs.