Insights

Suspending dealing in a fund: An end in itself or just the beginning of the end?

4/06/2019

When investor confidence in a manager is low, suspending dealing is one of the tools which can be used to manage the outward flow; as we have just seen from Neil Woodford. 

But applying the gate isn't something to be done lightly. 

First, it can further erode investor confidence. Leading to a vicious circle.

Second, some investors (particularly those burnt in previous suspensions) will automatically respond to a gate by submitting a full redemption request in a bid to secure their position in the queue. 

Third, it may lead investors to ask about the validity of any suspension and its application. (This might be good news for lawyers...)

Fourth, the time and effort taken up in managing investors (and market) expectations is vast. Everyone will want to speak to the manager and his team; when the main thing he will want to be doing is actively managing the issues with the portfolio.

It will be interesting to see how this one plays out, and what lessons (if any) have been learnt over the past decade and more.

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On Monday, Woodford Investment Management issued a statement saying it had suspended dealing in the funds in order to “protect the investors in the fund by allowing Woodford . . . time to reposition the element of the fund’s portfolio invested in unquoted and less liquid stocks, in to more liquid investments”. But while the move will give Mr Woodford breathing space to tackle his liquidity problems, it is likely to lead to more withdrawals down the line.

https://www.ft.com/content/ee03cb4a-8627-11e9-97ea-05ac2431f453