ASI closes £500m bond fund after Lloyds pulls assets

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ASI closes £500m bond fund after Lloyds pulls assets
Credits: Simon Dawson/Bloomberg

Aberdeen Standard Investments is to shut its £500m Global High Yield Bond fund as Lloyds Banking Group's subsidiary Scottish Widows, the fund’s largest investor, looks to withdraw more of its assets.

In a letter sent earlier this month, ASI told investors it was to close the fixed income fund on October 26 this year after the largest investor — which FTAdviser understands to be Lloyds — confirmed its intention to redeem its remaining shareholding in the fund.

ASI said: “Small funds face a number of operating difficulties as they are unable to benefit from economies of scale. 

“This may lead to problems in buying and selling assets at a reasonable price, which in turn may lead to compromised investment performance and proportionally higher costs.”

The fund house said believed it was in the best interest of all shareholders to close the fund, liquidate all of the underlying assets and return the proceeds to investors.

Investors have been given two options: redeem their holdings and receive their cash within the usual timescales, or remain invested in the fund until the closure date. 

ASI said it would continue to manage the fund and maintain the portfolio in line with its existing investment objectives until nine days before the closure date, when the process of liquidating the fund’s assets would begin.

Ongoing dispute

When Aberdeen merged with Standard Life in 2017, Lloyds invoked what it believed was a clause in the fund management contract allowing it to terminate the contract if the investment house was taken over by a competitor.

Lloyds claimed Standard Life was a competitor business of Scottish Widows, which is owned by Lloyds and operates in the insurance market alongside Standard Life, and initiated the process of withdrawing £100bn from SLA to its new wealth business Schroders Personal Wealth.

An arbitration tribunal has since ruled Lloyds had no right to remove the funds, but a part of the assets was still switched, with more to follow now.

The outflows were partly responsible for ASI swinging into the red in the first half of the year, while the same assets, pumped into Schroders as part of Lloyds’ wealth management partnership with the firm, helped Schroders buck the Covid crisis.

ASI has now urged investors to seek financial advice before redeeming or switching their investments, warning this could result in tax obligations.

Earlier this month FTAdviser reported that ASI was to close its poor performing UK Recovery Equity fund after the portfolio’s largest investor looked to redeem their “substantial” holding.

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