Andrew Bailey has said the Woodford debacle which unfolded last year was not "illustrative of a wider problem in the asset management industry".
The chief executive of the Financial Conduct Authority said a drop in asset prices, and the fallout which would follow, was one of his biggest concerns in the investment landscape.
He said there was "not a great understanding" of what the consequences of a major fall in asset prices would be, pointing to the fall from grace of fund manager Neil Woodford as the most prominent event to demonstrate the issue last year.
Mr Woodford was forced to suspend his flagship Equity Income fund in June when he struggled to meet redemptions following a sustained period of outflows.
The fund is in the process of being closed down and investors have been trapped in it ever since, but are expected to receive their first payments on January 30.
Mr Bailey said: "..here's somebody who'd become a star fund manager, built up a sort of following and a reputation acres of personal finance journalistic columns devoted to him.
"He was their hero until he wasn't and then he became the villain and he didn't manage his funds well."
Mr Bailey said supervising the asset management landscape remained a "real challenge" for the regulator, but warned consumers "cannot live in a world where people think the FCA will protect them against falls in asset vales".
He added: "Actually, however, we have to be careful here in what we want to achieve out of this - because why didn't [Woodford] manage the funds?
"Well, he invested in illiquid assets more than he probably should have done, but I've been clear that we do not want to kill off investment in illiquid assets.
"He invested in biotech, in artificial intelligence - well, we do want that in this country. We want investment, we want the economy to grow and we want jobs to be created. But Neil Woodford didn't do it very well."
Mr Bailey made the comments in his final appearance on the regulator's podcast, before his move to the Bank of England as its next governor in March.
The FCA boss warned it was not a "realistic expectation" to have funds which constantly rise in value, but said it was the FCA's job to ensure they operate within "sensible parameters".
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