CEO of Fidelity International Anne Richards has backed new rules governing the liquidity requirements of open-ended funds in the wake of the 2019 collapse of Woodford Investment Management and the most recent physical property fund suspension.
In an interview with the FT, Richards said the events that led to the collapse of Woodford IM and the December gating of the M&G Property Portfolio raised questions as to "when is an open-ended structure a good structure" for daily liquidity, and new rules should look at how liquidity functions in the event of unusual market conditions.
She added that regulators must consider when an open-ended structure may "need to have some mitigating factors around it depending on the underlying assets".
In December, the Bank of England proposed that property funds should be prevented from offering daily liquidity without a financial penalty, while the Financial Conduct Authority has also been examining the so-called liquidity mismatch in open-ended funds investing in illiquid assets.
Richards said any new rules for open-ended funds should "cover more explicitly when market conditions are not normal", but offered no specifics as to what those rules should be.
She explained that for listed securities, there has been a long held assumption that "liquidity will always be there when you need it", and that this has now been "called into question".
For unlisted assets, such as physical property, Richards said there needs to be a "different set of rules around fund structures".
She added: "That does not mean to say that daily dealing cannot be done, but it needs to be much more explicit about the conditions where daily dealings are no longer appropriate."
Richards also revealed that Fidelity has been using the Woodford saga as a test case for the firm's own liquidity, which it has used to examine how its own systems would bring up "red flags" for potential issues.
She said: "It was clear that our [liquidity] limits were way, way, way lower than we saw in the Woodford portfolio. We have nothing that is even close in terms of the liquidity profile of the Woodford fund.
"It gave us a real-life test case to put through the processes we have to give ourselves assurances that we are as alive to the issue as we need to be."