The "liquidity mismatch" question - the role (if any) that illiquid assets should play in the investment portfolios of open-ended funds - is not going away. The International Organization of Securities Commissions (IOSCO) intervened last week, reiterating its 2018 recommendation that "throughout the entire lifecycle of the fund (design, pre-launch, launch and subsequent operations), there should be an appropriate alignment between portfolio assets and redemption terms".
By referencing the design phase of a fund's lifecycle, IOSCO's statement hones in on a critical question - do we in fact need a new type of open-ended UK authorised fund, designed specifically to cater for investment in more illiquid assets, and that moves away from the daily dealing model that is so widespread? The Investment Association (IA) seems to think so, and is working on proposals for a new long-term asset fund (LTAF) which would only permit investor redemptions "at appropriate time intervals" - in line with IOSCO's recommendation to align the portfolio liquidity with investor liquidity.
More details on the IA's LTAF proposal are expected later this year, and it will be interesting to see whether they are positively received by regulatory bodies as a potential solution to the liquidity mismatch question.
Iosco on Thursday took the unusual step of detailing how, in its view, its 2018 recommendations “do, in fact, provide a comprehensive framework for regulators to deal with liquidity risks in investment funds”.