The serious potential for fund illiquidity, as demonstrated by the recent van Eyk experience, warrants major regulatory reform, with frequent status updates and a re-evaluation of responsible entities' liability.
Such is the opinion of analyst Greg Hogan, who calls for an overhaul of how the system addresses frozen funds in a submission to the Financial System Inquiry (FSI).
Using van Eyk and Macquarie's experience as a catalyst, Hogan says regulators should re-evaluate how much responsibility responsible entities take when a fund becomes illiquid.
While stressing that he attributes no blame or accusation of wrongdoing for the incidents that led to the suspension of redemptions for four van Eyk funds, he says the impact of ‘illiquidity scenarios' on the continuing viability of the van Eyk Blueprint International Shares Fund should have been considered.
He suggested a continuous-disclosure-like regime, as opposed to a breach-disclosure system as a potential remedy.
"Furthermore, it is submitted that there should be re-evaluation of the responsible entities' indemnity and limitation on liability where ‘non-viable' funds continue to accepting investors' applications," the submission says.
However, for the latter to be possible, there would need to be further investigation into when precisely a fund becomes insolvent.
