Focus: Lessons from the credit crunch

The report suggests fund managers need to follow guidelines and the industry needs to review its operation of single pricing to improve that industry guidance.

The majority of fund selectors agree with the IMA’s conclusion that the system has generally held up well in the face of difficult circumstances.

Gavin Haynes, investment director at Whitechurch Securities, says: “Regulation of UK-domiciled open-ended funds has generally proved to be robust in the fallout of financial markets over the past year. At the same time, the use of illiquid assets within open-ended funds has been highlighted as an area of concern, and suspension of high-profile funds such as New Star International Property, Heart of Africa and the Arch Cru funds highlighted that liquidity risk needs to be closely regulated.”

Mr Dampier believes the only funds example of real regulatory failure was the Arch Cru fund. He says: “This was heavily invested in private equity investments and not suitably named. A number of groups complained to the regulator, and the FSA did nothing.” He says the other fund suspensions were simply down to the difficulty of managing illiquid assets in open-ended funds.

The liquidity regime is imperfect, but it is difficult to think of a viable alternative. While the corporate bond markets are unlikely to close in the way they did last year, fair-value pricing needs some standardisation to avoid putting prudent firms at a disadvantage. Mr Fleming concludes that, while the fund management industry should not be complacent, it can take some pride in the way it has emerged from the credit crunch.

Cherry Reynard is a freelance journalist

IMA credit-crunch report: key findings

- Only seven funds - all targeted at highly sophisticated investors - were suspended during the crisis. The IMA perceives this a 'good' outcome, but wants to ensure fund suspensions remain low in future

- However, illiquidity in some funds - particularly property and frontier funds - caused investor detriment

- Collective funds remain resilient because their invested assets are kept separate from the balance sheet of the fund management company and because the industry operates under independent, fully audited valuations and pricing

- The importance of the independent depository, unique to the UK regulatory regime, is highlighted

- The industry should review the tools available to managers for liquidity management with a view to updating industry guidelines

- The issue of market-maker pricing for fixed income assets should be reviewed and industry guidance improved. However, some argue pricing is inevitably subjective