Suspended Funds In Your Pension?
An Investors Worst Nightmare
Five weeks after the Woodford Fund suspension, Hargreaves Lansdown informed clients that they could switch their investments to a rival platform. Initially, the clients had been told that their holdings were Z-class shares, which were not available on other platforms. The FCA has proposed new rules that would require platforms to offer clients the option of this type of ‘in specie’ transfer so investors can still own the same investments, even when they switch to a new provider.
The situation for expat clients with the remaining funds is more complicated. Transferring a suspended fund in specie is difficult. You may not complete an in specie transfer and must keep the illiquid asset with your original provider. Often, this prevents clients from moving any of their portfolio until the suspended asset becomes liquid again.
What Are Suspended Funds?
Fund managers may suspend a fund if withdrawal requests exceed their ability to manage liquidity. Essentially, everyone wants to withdraw their capital simultaneously. You may recall the 2007 ‘Run on Northern Rock,’ when people queued at cash machines to access their money (BBC News).
If a fund you invested in has been suspended, first determine whether it is ‘fully suspended’ or ‘partially closed’. If it is fully suspended, you cannot sell any of your holdings until the suspension is lifted. In the latter case, you will still be able to sell your units and or switch to another fund. In either situation, this is typically not a positive sign. We advise speaking with one of our Advisers to explore your options and reduce potential investment losses.
Woodford Fund Suspended
Neil Woodford is possibly the UK’s best-known fund manager. Unfortunately, he is now responsible for the UK’s highest-profile fund suspensions – Neil Woodford Fund Suspended. Woodford Investment Management suspended the Woodford Equity Income Fund on June 3, 2019, and experts now believe the suspension will continue until at least December 2019. Prior to the suspension, a large number of investors in the fund opted to sell or switch their holdings. The fund had lost almost two-thirds of its value in a two-year period.
Mr Woodford specialises in picking less favourable stocks that have the potential to grow in value. As less desirable stocks are cheaper, he typically buys them in large quantities. Unfortunately, he chose the shares of numerous companies that have experienced difficult times, and as the value of the Income Fund fell, many investors started withdrawing. Some suggest Mr Woodford expected these stocks to rise once a Brexit deal was finalised. So the fact the UK did not ‘Brexit’ as planned on March 29, 2019, exacerbated the losses.
Some of the companies the Woodford fund invested in include:
- Construction group Kier – Share price fell by 41% in one day
- Doorstep lender Provident Financial – Share price dropped 81% over two years
- The Automobile Association – Share price fell by 88% over four years
As investors withdrew funds, the proportion of the fund’s investments held in unlisted companies increased. Shares in companies not listed on a major stock exchange are generally ‘illiquid assets’ and hard to sell. Mr Woodford then had to sell some of the fund’s more liquid investments, such as FTSE 100 shares, to release cash for investors. On May 31 and June 3, the last two business days on which the fund traded, as usual, the amount withdrawn from the fund was £296 million, which represents 8.2% of the total fund size. Of this £296 million, Kent County Council’s pension fund was seeking to sell £238 million. The fund will now remain suspended until Mr Woodford can re-position the fund so that it invests in more liquid stocks. Sometimes one investment fund will invest in another. Hargreaves Lansdown’s Multi-Manager Income & Growth Fund, for example, has around one-third of its funds invested in the suspended Woodford fund.
The UK Financial Conduct Authority (FCA) opened an investigation into Mr Woodford’s company. The regulator reported that it wished to consider new rules that would restrict the ability of a fund manager to invest and hold illiquid assets (FT, 2019).
Standard Life Property Fund Suspended
In July 2016, Standard Life suspended its UK Real Estate Fund along with other associated UK property funds. This was the first of several property fund suspensions, as investors, concerned by the Brexit referendum result, rushed to withdraw their money.
Standard Life re-opened the fund in October 2016, saying it had raised sufficient liquidity to cover future redemption requests. Property is most certainly an example of an illiquid asset – it is difficult to sell quickly and sometimes tricky to value accurately as well. Many analysts warn that a no-deal Brexit could trigger a new wave of commercial property fund suspensions. Standard life property fund suspended was a reminder to many how illiquid property can be.
Trafalgar Multi-Asset Fund Suspended
Managers wound up the troubled Trafalgar Multi-Asset Fund in January 2017. With the remaining assets in the Cayman-domiciled fund paid to the trustees representing the investors. The Serious Fraud Office (SFO) in London investigated the suspended Trafalgar Multi-Asset Fund. (BBC News). The SFO deemed it part of a broader issue of pension liberation scams. Cold callers persuaded many investors in this fund to transfer money out of safe final salary schemes.
The issues regarding the Trafalgar Multi-Asset Fund Suspended ran deep. The liquidators described it as one of the most obvious scams they had seen, using typical forms of ‘layering’ to misappropriate investor funds. The QROP provider STM Fidecs came under scrutiny in the fall out of the suspended Trafalgar Fund. STM Fidecs were subject to a large number of complaints to the Gibraltar authorities.
The SFO reported their finding to the UK Government in 2017 (SFO). Some investors received advice to invest 100% of their portfolio into a now-suspended UCIS fund. If the Trafalgar Multi-Asset Fund affected your portfolio, our team can provide a full, no-cost review to help you understand your options. We will advise what you can do moving forward to improve your portfolio performance.
Lucent Strategic Land Fund Suspended
The Lucent Strategic Land Fund aimed to provide funding, expert knowledge, and commercial support to local UK businesses. The fund’s suspension saga peaked in June 2016, when managers halted the fund due to concerns over the value of the Lincolnshire Lakes property development in which it had invested.
GAM Funds Suspended
Internal disciplinary issues created problems for GAM’s absolute return bond funds. Managers first suspended the funds in August 2018 and then liquidated them in July 2019, distributing the proceeds to investors. GAM funds suspended happened after many investors sought to cash in their holding following news that the firm was investigating the fund manager Tim Hayward over risk management and record-keeping issues (The Financial Times, 2019).
The firm eventually dismissed Mr Hayward for gross misconduct, and GAM’s share price fell significantly during this period (The FT). If GAM fund suspensions have affected your portfolio, contact us for a free consultation with one of our Financial Advisers. You can understand what your options are and how best to regain portfolio value.
Quadris Funds Suspended
Managers suspended the Quadris Environmental Forestry Fund in July 2017 after its US lender declared it in default. The fund had invested heavily in teak plantations in Brazil. It was wound up in May 2019, and investors did not recover any of their money.
Quadris Funds Suspended related to illiquidity. The fund managers advised investors that the fund could remain suspended until 2032 as the fund invests in forest growth cells (The Telegraph). This does not necessarily mean that investors have lost all of their money, but it is not a good sign. If the Quadris fund suspension has affected your portfolio, book a free consultation with our Financial Adviser to review your investments and explore your options.
Strategic Growth Fund Suspended
Managers suspended the Belvedere Management Group Strategic Growth Fund in May 2013 without fully explaining the reasons behind its troubles. The issues may have partly stemmed from a South African private equity firm in which the fund invested. Several deVere Group clients were advised to invest in this fund.
Managers eventually closed the fund, and remaining investors recovered very little of their investment. In March 2014, DeVere Group paid £70,000 in compensation to a client who had been advised to invest 80% of his portfolio in the fund, which then fell from £89,000 to around £20,000 (This is Money). If the Strategic Growth Fund suspension has affected your portfolio, our Advisers can review your policies containing toxic or illiquid assets and guide you on how to rebuild your portfolio with daily traded, liquid investments.
Any News On Suspended Centurion Funds?
Centurion Fund Managers suspended redemptions from its traded life policy fund in September 2011, citing changes in discount rates on the purchase of life assurance policies in the US and what it called a “lower than anticipated level of policy maturities”. Managers eventually wound up the Cayman-Island based fund, and investors are believed to have lost around 70% of their capital. (The FT).
Can You In Specie Transfer A Suspended Fund?
Five weeks after the Woodford Fund suspension, Hargreaves Lansdown informed clients that they could switch their investments to a rival platform. Initially, clients had been told that their holdings were Z-class shares, which were unavailable on other platforms. The FCA has proposed new rules that would require platforms to offer clients the option of this type of ‘in specie’ transfer so investors can still own the same investments, even when they switch to a new provider.
The story for Expat clients on the remainder of the funds outlined in this article is more complicated. To in specie transfer, a suspended fund is fraught with difficulties. It may not be possible to complete an in specie transfer, and you must hold the illiquid asset and remain with your original investment provider. This often means that the client cannot move any of their portfolios to another provider until this suspended asset has become liquid again.
What Can You Do About Suspended Funds?
Prevention is better than cure. Taking time with your Adviser to ensure your portfolio is in line with your risk profile is essential. So too is working with a company with a longterm track record of performance and daily traded funds. If you are unfortunate enough to have money in a fund that is suspended, steps you and our Adviser can take include:
Steps
- Find out if the fund has been partially closed or fully suspended
- Subscribe for email updates – Be the first to know about any developments
- If you make monthly contributions to the fund, we would advise choosing another investment vehicle in which to place your money
- Find out if there is a campaign group, or similar, made up of investors who have suffered the same fate as you
The above are the first four steps our Financial Advisers go through when clients contact us with suspended funds in their portfolio. Following this, our Adviser will start concentrating on how you can begin to move forward again and make up for any portfolio losses.
Summary
If you are reading this Suspended Funds article, likely, you have already had a bad experience with your previous Financial Adviser. We understand this. As such, we wish to assure you that none of our Cameron James Advisers previously advised clients to invest in any of the above funds. Or any fund that has ever been suspended. We pride ourselves on a robust investment process which mitigates against this happening.
It is essential to speak with a professional to understand what your options are. This is why we offer a free review of all portfolios with suspended funds. We will outline what your options are, and then you can decide from there.
