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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