This remains the case today. There is no distinction in place for an investor with regard to the liquidity of the underlying assets within one retail open-ended, daily dealing OEIC/UT and another. There is no requirement for the promoter, ACD or fund manager to make the investor aware when this could be the case and no requirement to declare that there is a risk that during a major market set-back, an investor may end up holding a suspended investment where they cannot get their money back, on demand.
COVID-19 has cruelly exposed this conflict once more where most bricks and mortar commercial property funds are currently suspended and there is no certainty as to when they may reopen. What is worse this time around is that the asset class is unlikely to experience the usual recovery in tandem with economic conditions. The virus has brought about a huge change in corporate thinking with regard to remote working and the need to occupy expensive offices in city centres. This means that when these property funds do reopen, there is likely to be a significant mark down in the value of the assets, whenever the valuers can be assured of what the value is, given the likelihood of reduced demand and a probable reduction in development expenditure. It could be some months before this becomes clearer.
There needs to be a change. Maybe that comes as a change in the risk declarations, or possibly it could be something more fundamental. This is not unique to property but relevant to any fund that has illiquid underlying assets but needs to provide daily dealing for retail investors. Perhaps the way forward is to restrict such assets to investment trust structures, which is why renewable infrastructure funds are all investment trusts. The market for wind turbines and solar farms is not particularly liquid and abundant with buyers. Another idea could be to introduce a liquidity measure such that when a fund gets to a certain size and has significant stakes in unquoted businesses which would be difficult to sell, think Woodford, then daily dealing is removed subject to some sort of calculation. This would however affect a lot of funds but clearly there needs to be a change.
So, our guidance would be, when investing in any daily dealing open-ended fund, always consider the liquidity of the underlying assets, not just today, but historically at times of market stress. It could prevent some nasty surprises and orphaned assets in the future.
The value of an investment with Rowan Dartington may fall as well as rise. You may get back less than the amount invested.
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