A strange love of daily redemption

In the last two years, the UK has seen consistent outflows, stemmed in recent months by widespread suspensions. By contrast, Germany has seen inflows, even in the post-COVID period.

Since July 2018, the German sector has grown from £77bn to £101bn*. The UK sector has shrunk from £19bn to £13bn. The idea that notice periods are ‘bad for business’ is simply not true.

Conclusion

If we get notice periods right, investors will have a genuine choice. An open-ended fund which can remain fully invested, which investors can leave at asset value on giving reasonable notice.  Or a closed-ended investment company, which investors can leave at any time at a price determined by the stock market.

Either structure will perform exactly as intended, and neither will require fire sales at times of market stress which not only harm investors in the fund, but also spread contagion to other funds and the broader economy.

A brave new world, perhaps?

* UK and German fund flows and asset sizes excluding feeder funds and fund of funds. Source: Morningstar.