Investors in Neil Woodford’s Equity Income Fund had their first idea of how much they might get back from their investment and it was not the best news.
The thousands of investors who have been prevented from taking their money out of the fund since last June were told that, depending on the types of shares they held, they would be looking at receiving between 46.3p and 58.9p per share.
But this is also dependent on whether they were accumulating their returns or receiving income, and who was distributing the fund.
Across the board, it meant a loss of between 20.8 per cent and 43 per cent of their investment, according to Jason Hollands, managing director of Tilney, and again that figure depends on whether they invested at the fund’s zenith in June 2017 or at another time.
That may not be the full extent of their returns though, as some illiquid assets are still in the process of being divested and there may be more to come.
That is the difficulty with illiquid assets: they take time to realise and if there is a run on the fund, as there was with the Woodford Equity Income Fund, the only option you have is to suspend the fund.
That causes more panic among investors who previously were perfectly happy and has the potential to bring about its overall downfall.
While the fall from grace for Mr Woodford has been dramatic, there are many other funds that are not perhaps as liquid as their investors think they are.
In fact, the European Securities and Markets Authority has raised this specific issue in its latest survey of alternative investment funds, released in January.
This sector was worth €5.8tn (£4.9tn) last year based on net asset value, accounting for 40 per cent of the overall EU fund industry.
Fund-of-funds – a favourite for retail investors – amounted to 14 per cent of the overall amount of the industry, with real estate funds accounting for 12 per cent, and hedge funds and private equity funds each worth 6 per cent of the overall figure.
However, Esma very specifically pointed to the liquidity risk associated with fund-of-funds and real estate, which had the highest proportion of retail investors who may have little knowledge of the increased risk they are taking with their investments.
In the report, Esma highlighted that 31 per cent of fund-of-funds investors were retail, while 21 per cent of real estate fund investors were retail.
More worryingly, it stated: “Many of the funds in the real estate sector offer daily liquidity, which indicates a structural vulnerability risk as they invest in illiquid assets while allowing investors to redeem their shares over a short timeframe.
“For the funds-of-funds sector there is a mismatch in liquidity, as 35 per cent of the NAV is redeemable within a day, while only 24 per cent of assets can be liquidated within that timeframe.”