Investment Management Association

Fund suspensions

Why would a fund suspend?

An authorised fund can suspend only in exceptional circumstances and when it is in the best interests of all investors in the fund. There have been only a very small number of suspensions, but the reasons for suspension fall into a number of broad categories:

• Natural disasters, market failures or exchange closures (which is what happened in the USA on 9/11), or when developing countries have suddenly introduced exchange controls. At such times it may be impossible to value or sell assets.
• Liquidity issues, when a very large number of investors unexpectedly want to redeem their units or shares at the same time or when asset values fall sharply and trading in the capital markets dries up, so assets cannot not be sold to meet redemptions (for example, during the 2008/09 credit crisis). 
• When one of the key parties involved in the operation of the fund closes down, the fund may then suspend temporarily until a new party takes over.
• When funds are being wound up or merged with another fund.

What is the process?

Before making the decision to suspend a fund, the manager and trustee or depositary must have considered all alternative causes of action. The regulator must also be informed and all investors notified. 

The manager must ensure that the suspension is temporary, of minimal duration and consistent with the fund’s documentation. During the suspension, the manager must keep investors informed. All redemption requests are held and executed after the end of the suspension. The suspension must be regularly and formally reviewed by the manager and trustee or depositary, and the regulator must be kept informed.

For more detail, read ‘Authorised Funds: A Regulatory Guide’