A redemption notice period gives managers more time to prepare, but cannot create buyers for the underlying properties. The FCA’s proposed minimum 90-day redemption notice period addresses a genuine weakness in funds holding illiquid assets. Its effectiveness will depend on whether the additional time matches the portfolio’s ability to generate cash, particularly when withdrawals rise together.
Our earlier article, “Liquid Access to Illiquid Markets: Innovation, or an Illusion?”, examined the constraints that remain when private assets are packaged into more accessible investments. The latest proposal brings that discussion into product design: how much access should a fund offer when its assets cannot reliably be sold quickly?
What the FCA is proposing
Published on 8 October, the consultation proposes minimum redemption terms for non-UCITS retail schemes invested mainly in inherently illiquid assets, including property. The relevant category covers funds with at least 50% of their value invested in such assets. The proposed minimum notice period is 90 days, with longer periods where the assets or strategy require them.
These are proposals, rather than rules already in force. Consultation closes on 11 December, and the FCA expects to publish final rules in the first half of 2027.
The rationale is straightforward. Daily withdrawals can require managers to pay investors before properties can be sold. Advance notice gives managers a clearer view of forthcoming cash requirements and more time to organise sales, reducing the pressure to accept unfavourable prices.
Time helps, but buyers still determine liquidity
A notice period changes when cash is required. It does not establish how much cash an asset sale will produce, or whether a transaction will complete within that period.
Property transactions depend on due diligence, financing, legal work and buyer appetite. A sale expected to complete comfortably within the notice window may be delayed. In stressed conditions, buyers may withdraw or seek a larger discount.
The scale of withdrawals also matters. A manageable request from one investor is different from widespread redemptions following a sector downturn. Notice provides earlier visibility of withdrawal requests, but several funds seeking buyers simultaneously can still put pressure on asset sale prices.
The improvement is therefore meaningful but conditional: managers gain preparation time, while the underlying market continues to determine execution.
Cash reserves involve a portfolio trade-off
Holding cash can help a fund meet withdrawals without immediately selling properties. However, it also changes the exposure investors receive. A substantial cash balance means less capital participating in the property strategy and a return increasingly influenced by cash yields.
Notice periods may allow managers to operate with smaller liquidity reserves. That could increase exposure to the intended assets, but it also makes the reliability of projected sales and cash flows more important.
Allocators should examine how redemption assumptions interact with cash holdings, expected rental receipts, borrowing arrangements and planned disposals. A longer notice period is most useful when supported by a credible funding process, rather than treated as sufficient protection on its own.
Risk warnings must explain the remaining uncertainty
There is also a compliance and communication issue. Investors could read “90 days’ notice” as an assurance that proceeds will arrive on a fixed date. Those are different propositions, and product communications should make the distinction clear.
The relevant fund terms need to explain when notice begins, which dealing date applies, when the redemption price is determined and when proceeds are expected to be paid. Any powers to defer or suspend redemptions also remain material to understanding access.
Price uncertainty deserves equal attention because giving notice does not necessarily lock in the value shown when the request is submitted. Where pricing occurs later, investors remain exposed to movements in the fund’s value during the intervening period.
For compliance teams, the issue is whether the overall presentation creates an accurate expectation of access. A prominent notice period alongside a generic warning that investments can fall in value may leave the most important practical uncertainty insufficiently explained.
Portfolio liquidity needs its own assessment
For wealth managers and institutional allocators, the question extends beyond whether the fund’s arrangements are reasonable. The holding must also fit the investor’s cash requirements.
A property allocation intended for long-term diversification may accommodate restricted access. The same holding becomes more problematic if its proceeds are expected to fund a dated liability or provide cash during a wider market downturn.
Assessments should therefore include delayed proceeds, lower redemption values and simultaneous pressure on other portfolio holdings. Diversification across funds may offer limited protection if their assets depend on the same pool of buyers.
A notice period can improve the management of liquidity risk by giving managers time and investors clearer expectations. Its value lies in aligning access more closely with the assets. The remaining task is to ensure that fund design, portfolio planning and risk disclosures all recognise what that additional time can, and cannot, achieve.