Woodford’s woes prompt Carney to call for tougher fund rules
Carney has called for a tightening in the regulation of open-ended funds in order to mitigate any systemic risks posed by funds where there is a potential liquidity mis-match.
Open-ended funds, like the Woodford Equity Income fund, offer investors daily trading – even though the underlying assets may be illiquid or much slower to trade.
In contrast, closed-ended funds – such as investment trusts and investment companies – provide a solution to the illiquidity issue because they are funds that are listed on the stock exchange and can be traded through good and bad times.
In a speech in Tokyo, the Bank of England governor referred to “niche managers” who are likely to come under pressure to fire-sell their assets as a result of structural mis-matches within their funds.
What went wrong for Woodford?
Carney’s comments follow a torrid week for well-known fund manager Neil Woodford, after his firm suspended trading in its flagship equity income fund as a result of significant outflows and a mis-match of liquidity due to the fund’s exposure to unlisted companies.
In a video message, Woodford said he was “extremely sorry” the firm had taken the decision to suspend trading, but was keen to stress that it was intended to protect the interests of investors.
The fund’s suspension has resulted in Woodford’s eponymous fund firm losing a £3.5bn mandate with financial advice group St James’s Place, as well as a £330m fund that was previously run on behalf of financial advice network Openwork.
Investment platform Hargreaves Lansdown, which had long been a supporter of the Woodford Equity Income fund, has responded to the fund’s suspension by taking it off its Wealth 50 list of preferred funds. Hargreaves’ clients account for 30 per cent of the fund.
The company has also waived its platform fee while the fund’s dealing is suspended and has called for Woodford Investment Management to waive its management fee in turn. However, this request has so far been met with silence.