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Investment Trust Insider on Long Term Asset Funds

Investment Trust Insider on Perpetual Income and Growth

Investment Trust Insider on Long Term Asset Funds – James Carthew: ‘Long-Term Asset’ funds a ruse not solution

Following Bank of England governor Mark Carney’s criticism of open-ended funds investing in illiquid assets, fund manager trade body the Investment Association (IA) has dreamed up a new fund structure, a ‘Long-Term Asset Fund’, that would not offer daily access to investors.

The detail is light – the IA promises a blueprint later this year – but the discussion is around only offering investors liquidity at regular intervals.

To my mind, the only way that this could work in practice is for investors to give notice of redemptions and for these to be settled after a delay. The alternative is that these funds run with substantial cash held in reserve against possible withdrawals – diluting returns for investors.

The length of the delay between a redemption request and its settlement would then reflect the illiquidity of the underlying investments and how long they take to sell.

Some limit might have to be placed on the amount of a fund available for redemption. Investors might have to accept the creation of sub funds holding assets for sale that would return cash over time.

Personally, I find it hard to imagine a scenario where these Long-Term Asset funds would represent attractive investments, especially compared to existing ‘closed-end’ investment companies.

We have been around the houses on this issue before after the financial crisis when the Financial Conduct Authority bowed to fund manager pressure and did not order all open-ended property funds to become property investment companies or real estate investment trusts (Reits).

If the FCA continues to do nothing about this situation we will likely see more gatings and suspensions of funds like Woodford Equity Income and more frustrated, angry investors.

It feels to me as though the IA is defending its market position and… read more here