The City-watchdog is probing a number of giant funds which are invested in Neil Woodford’s suspended flagship portfolio in an attempt to curb a potential liquidity crisis.
According to FTAdviser’s sister paper, the Financial Times, the Financial Conduct Authority is investigating funds with more than £15bn assets under management that have holdings in the Woodford Equity Income fund.
The impacted funds are primarily multi-manager funds with the suspended fund as a substantial holding, as the regulator fears investors in such portfolios are vulnerable to contagion from the now-defunct fund, the FT reported.
The FCA is concerned redemptions will soar in the multi-manager funds, due to their connection with Mr Woodford, and that a potential liquidity crisis could embroil the funds if they struggle to meet the redemptions, particularly if they are unable to pull money from Mr Woodford’s suspended vehicle.
According to the FT at least 15 UK retail funds are invested in the Equity Income fund, including multi-manager funds from Hargreaves Lansdown and Quilter Investors.
Earlier this year Hargreaves faced a loss of about £1.9m in fees from the Woodford debacle as investors pulled millions from the firm’s in-house funds.
Hargreaves has six multi-manager funds exposed to Mr Woodford’s Equity Income fund while Quilter has £8.9bn in portfolios which hold the suspended fund.
Hargreaves told the FT it expected the Woodford fund to have “limited” impact on its multi-manager funds given it is just one of 60 funds the portfolios invest in.
It added that the size of the Woodford fund had fallen as a proportion of its portfolios since the fund’s suspension.
Describing its multi-manager range as “highly liquid”, Hargreaves said redemptions would be “easily met” first from cash and second from selling down holdings that had done well.
Quilter, The Share Centre and Octopus Investments told the FT that the risk of Woodford contagion on their funds was low given the diversified nature of the portfolios.
The manager of the Gemini fund could not be reached for comment but its authorised corporate director told the paper it monitored all aspects of the fund’s liquidity daily. The FCA declined to comment to the FT.
The liquidity crisis has recently hit UK property funds, with M&G suspending its UK Property Portfolio after an “unusually high period of outflows” last week (December 4).
This mirrored what happened after the UK voted to leave the EU in 2016 when a number of open-ended property funds were gated due to a high level of redemptions.
imogen.tew@ft.com
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