Open-end funds that invest in illiquid assets, such as buildings and infrastructure, are quite appealing, as well as seriously risky, to investors. They offer the potential for higher returns than certain other funds, but there are also problems and dangers inherent in their structure and strategy. These risks flow in part from a tension between the fund’s ostensible long-term investment objectives and the propensity for some investors to redeem, regardless of the liquidity available to the fund at a given moment or the effect of those redemptions on remaining investors. All of these points come across in a discussion paper recently published by the U.K. Financial Conduct Authority (FCA) assessing the risks when consumers turn to open-end investment funds to gain exposure to illiquid assets and outlining several liquidity management mechanisms that funds can use. This article analyzes, and presents insights from partners of law firms at the forefront of interactions between the global funds industry and regulatory agencies on, the issues outlined in the discussion paper and the potential for further regulation of open-end funds that invest in illiquid assets. For discussion of another recent FCA statement on liquidity issues, see “FCA Expects Hedge Fund Managers to Focus on Liquidity Risk
” (Mar. 3, 2016).