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Watchdog on Woodford: ‘We don’t want to kill off illiquid asset investment’

Paloma Kubiak
Written By:
Paloma Kubiak

The boss of the financial regulator said the country needs investment in illiquid assets in spite of the Woodford scandal, adding this isn’t illustrative of a wider problem in asset management.

Andrew Bailey, chief executive of the Financial Conduct Authority (FCA) said there was a lot more focus on investment and asset management following the events of the Woodford debacle which unfolded last year.

He said one of the biggest challenges faced by the FCA is that more of the population is exposed directly to asset prices which can’t keep going up, and the regulator can’t protect investors against falls in asset values.

“One of the things that worries me most is that the population is far more exposed to asset prices and there hasn’t been a major fall in asset prices now since the crisis. Of course, we don’t want one to happen but they do happen and I do think that there is not as great an understanding of what the consequences of that could be,” he said.

The Woodford fallout illustrated this issue but Bailey added it’s not representative of a wider problem in the asset management industry.

“Here’s somebody who’d become a star fund manager, built up a sort of following and a reputation, acres of personal finance journalistic columns devoted to him, he was their hero until he wasn’t and then he became the villain and he didn’t manage his funds well.”

The boss who departs for the Bank of England in March, said Woodford invested in illiquid assets “more than he probably should have done” but added he doesn’t want to kill off investment in illiquid assets.

“He invested in biotech, in artificial intelligence – we do want that in this country, we want investment, we want the economy to grow, we want jobs to be created but Neil Woodford didn’t do it very well,” Bailey said.

He added: “We cannot live in a world where people think the FCA will protect them against falls in asset values, that will not happen, it’s not a society we can live in, it’s not an economy we can live in but we have a lot to do to, in a sense, make that system safe. It has to be safe and it has to be well understood because people need to understand the risks they’re taking and manage their exposure to those risks accordingly.”

Bailey said it’s not a “realistic expectation” for asset management funds to constantly rise in value and the FCA’s job is to ensure they “operate within sensible parameters, they’re transparent and there’s a broad understanding of the nature of what these investment management vehicles are”.