Fund managers will be forced to give clear warnings to clients investing in difficult-to-sell assets to protect them from shock suspensions similar to the gate to Neil Woodford's flagship fund.
The Financial Conduct Authority's rules, announced Monday, will also require certain fund managers to draw up plans that outline how they would cope with an unexpected increase in the number of clients requiring to withdraw their cash.
Woodford's flagship fund was suspended in June after being overwhelmed by customer withdrawals following a series of poor market efforts. Woodford Equity Income Fund is still suspended.
Woodford asked clients for his stock market fund, the Woodford Patient Capital Trust, for an apology, which has fallen in value since June.
for which I am very sorry. While shareholders can be forgiven for believing that there are no positive things, I continue to believe that the majority of the businesses we have invested in are making good progress, in line with our pre-agreed milestones, ”he said.
His comments were published on Monday along with WPCT's half-year results, which showed that the fund's total value fell 1[ads1]9% over the six months to June 30 from £ 807m to £ 654m. Since then it has dropped a further 9.7% to £ 591m.
Susan Searle, fund manager, said: "This has undoubtedly been the most challenging period for the company since it floated in 2015 … We have already taken a number of crucial and proactive measures following the entry into the LF Woodford Equity Income Fund and remains focused on taking the necessary steps to support the future value of the company's portfolio. " can take time, and ultimately, the board's decision is what works to protect long-term shareholder value, "Searle said.
The FCA regulation, which comes into effect from September 2020, primarily concerns open properties, which investors can easily buy and sell out, without restrictions. But these funds can get in trouble if there is a sharp increase in redemptions, as real estate investments are not sold as easily for cash as other liquid assets such as equities.
The rules were drafted after the gate to the UK Real Estate Fund in 2016, when investors panicking began to withdraw their money after the Brexit vote. But the release was delayed so regulators could take a closer look at the circumstances that led to the Woodford Equity Income Fund's suspension.
While the regulation does not directly apply to Woodford, which is focused on equity investments rather than real estate, the FCA said the gated episode highlighted the importance of managing difficult-to-sell assets held in open-ended funds properly.