FCA consultation offers significant benefits to UK open-ended property funds

Findings from the FCA consultation on potential changes to the structure of open-ended property funds contain significant benefits for the sector says Richard Peacock co-manager of the Kames Property Income Fund.

“We welcome the FCA’s consultation on potential changes to the structure of open-ended property funds,” says Peacock. “We believe that it provides an excellent opportunity for the views of all stakeholders to be heard and to consider how changes can be made to the structure of these vehicles that will improve the outcomes received by investors.”

The consultation, released in August 2020 has proposed a range of options with regard to notice periods to address an illiquidity mismatch in open-ended property funds. “The principle behind this is to promote investors committing to funds over long term investment horizons and to align redemption periods with the time taken to dispose of property assets,” says Peacock. “This will allow managers to hold lower cash weightings, buy and sell assets in a disciplined manner in response to flows and will ultimately support the delivery of improved returns for investors.”

The Kames Property Income Fund aims to deliver an attractive income return for investors. It has distributed 5.16% over the last 12 months. [1]

Peacock says, “The proposed changes to notice periods will not lead to a fundamental change to our strategy that has focused on market inefficiencies around smaller lot sizes, holding a proportion of the portfolio in higher yielding assets and intensively asset managing the portfolio. However, it is likely that the fund will be able to operate with a lower cash weighting and reallocate this to property assets in line with these strategic themes which will support the aim of an increased income distribution – a positive outcome for the fund’s investors.

“We look forward to speaking to the fund’s investor base in the coming weeks to discuss the implications of the proposed changes and expect the tax-efficient structure of the fund to continue to prove attractive to investors willing to commit to the sector for the long-term.”

^[1] Source: Kames Capital: Yield Disclosure: All yields as at 31 July 2020. Yields may vary and are not guaranteed. “Yield” in this context is the Historic Yield which reflects distributions declared over the past twelve months as a percentage of the mid-market unit price, as at the date shown. It does not include any preliminary charge and investors may be subject to tax on their distributions. Please note the most recent monthly distribution is based on the estimated distribution rate.