Daily liquidity concerns raised by fund selector board

Investors expect daily liquidity from asset classes that do not always support it, according to the International Advisory Board for Fund Selection (IAB).

At a recent meeting in Madrid, the board raised concerns about daily liquidity, saying there was often a mismatch between the liquidity of investment classes and underlying assets.

Regulatory attempts to balance the competing demands of investors with objectives laid down by fund managers were increasingly challenged, members of the group found. Accelerating early redemptions could alter the dynamic of the fund and challenge its original purpose, they said.

According to Professor Andrew Clare, IAB board member and investment management head at Cass Business School, it’s a matter of education.

“In the case of property, most people know that they can’t wake up in the morning and decide to sell their house by 12 o’clock the same day.  But investors expect to have daily liquidity in their property portfolio, that is, the option to complete commercial property transactions in a day,” he said.

Clare added: “To have daily liquidity in property funds is just nonsensical. Of all the asset classes, it’s probably the biggest mismatch between product and underlying asset there is. In my view the industry needs to bite the bullet and explain to investors when they can’t have daily liquidity, particularly in property funds.”

©2020 funds europe

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