Fund selectors have implored asset managers to disclose more information about underlying investors as individual buyers take control of ever larger pools of money.
Selectors say they are growing more wary of their peers’ ability to affect the fates of funds, particularly as more advisers outsource their investment responsibilities to third parties.
Ownership concentration has been thrust into the spotlight more recently by the suspension of the Aviva Investors’ Asia Pacific Property fund, buyers say.
Chris Kitchenham, executive director of Walker Crips Investment Management, said he has “not yet had a good answer” from fund groups over how they monitor and cope with co-investor risk.
“We get vague answers about asset managers intending to maintain good communications with investors. But in my experience if an investment manager wants to sell out, they will – it doesn’t matter what kind of relationship they have with the salesman.”
Mr Kitchenham said the potential for a fund to change shape in the event of a major redemption is becoming an increasingly significant concern – a sentiment shared by Steven Richards, associate director at Thesis Asset Management.
Mr Richards said: “What will happen if [another investor] decides to sell their x per cent stake in the fund? Will it make the fund managers’ job difficult, will the fund be commercially viable thereafter, or will the fund even close?”
Fund groups have different strategies for detailing the make-up of their investor base, but say they can be prevented from providing full transparency as a result of non-disclosure agreements with certain investors.
The head of sales at one large UK retail fund house, who did not wish to be named, said the firm does not break down investor holdings, but instead provides contextual information.
“We tell investors where they are in the pecking order in terms of size. The issue is becoming particularly important to investors looking at new or smaller funds,” the sales head said.
Steve Kenny, head of sales at Kames Capital, agreed the issue is becoming more pressing.
“Fund buyers are getting more concerned about this. You have a smaller number of people wielding a bigger chequebook.”
One area of the market where liquidity is particularly important is in the fixed income market, especially as interest rate hikes draw nearer.
Boutique TwentyFour Asset Management said disclosing a detailed breakdown of its major investors is “standard practice”.
John Magrath, head of distribution, said: “They [investors] wouldn’t invest with us if we didn’t provide a breakdown. It’s standard due diligence.”
Weak foundations of Aviva property fund
Fund selectors highlighted the suspension of the Aviva Investors Asia Pacific Property portfolio as evidence of the dangers of co-investor risk.
Gavin Haynes, managing director at Whitechurch Securities, said such risks are “particularly important in areas such as open-ended commercial property”.
Aviva Investors has suspended the £159m fund and plans to close it after two investors, who make up 75 per cent of its portfolio, informed the firm they were planning to redeem.
The group has told investors that “complexities of selling commercial property and dismantling the associated legal structures within the fund” mean switches and redemptions will take at least 12 to 24 months to complete.
A spokesperson from Aviva said: “We would not look to launch a fund that we expected to be reliant on one or two large investors. We do not take these decisions [to close funds] lightly and will always look at alternative options first.”
