Fund suspension prompts questions over illiquid assets

Questions are being raised about funds holding illiquid assets after the suspension of a £3.7 billion fund run by UK fund manager Neil Woodford.

Woodford, who was known as a star manager in the UK after 26 years at Invesco Perpetual, was forced to suspend his Woodford Equity Income fund on 3 June after rising outflows.

Performance had been poor for several quarters and outflows mounted which caused the fund to fall from £10.2 billion to £3.7 billion in just two years. The matter worsened in May 2019 when the fund lost £560m in one month and was forced to freeze redemptions.

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UK regulator, the Financial Conduct Authority, announced a formal investigation into the suspension after it was revealed Woodford breached the limit for unlisted stocks twice during 2018.

UK rules state funds must not hold more than 10 per cent in unlisted equities but Woodford, who chose to invest a large part of his fund in small and early-stage companies, avoided this by holding shares listed on the International Stock Exchange in Guernsey rather than the London Stock Exchange.

Financial planning technology company PlanPlus Global said the high volume of unlisted assets held by Woodford highlighted the need for investors to be aware of what was in their funds.

“This example highlights the importance of knowing what assets are within an actively traded fund, versus an index fund. The proportion of assets in the Woodford fund estimated to take over 180 days to liquidate had  increased from 25 per cent in June 2018 to 33 per cent by April 2019.”

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Many Super funds are well aware if the dangers of illiquid assets in supposedly liquid funds from their experience with the GAM Absolute Return Bond Fund last year. FCA-regulated GAM had over 20% of client assets in opaque and illiquid bonds created by Australian financier Lex Greensill, many linked to projects of Greensill Capital shareholder Sanjeev Gupta and his GFG companies. The fund suspended dealings and subsequently announced its liquidation in August 2018 and the investment director was sacked for gross misconduct in February 2019. Investors, including several Super funds, are waiting for the final 20% of their monies to be returned.

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