Suspended Funds In Your Pension?
An Investors Worst Nightmare
Five weeks after the Woodford Fund Suspension, clients of Hargreaves Landsdown were told that they could switch their investment to a rival platform. Having initially been told that their holdings were Z-class shares and that this share class was not available on rival 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 Are Suspended Funds?
Fund managers may decide to suspend a fund if the number of withdrawal requests reaches such a level that they are unable to manage the fund’s liquidity. Effectively, everyone wants their capital out at the same time. Many of you will recall the ‘Run on Northern Rock’ in 2007 as people queued at cash machines to withdraw their money (BBC News).
If one of the funds you have invested in has been suspended, the first thing to establish is whether it has been ‘fully suspended’ or ‘partially closed’. In the first set of circumstances, you won’t be able to 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 would advise speaking to one of our Advisers to understand your options and what you may be able to do to minimise any potential 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’s Woodford Equity Income Fund was suspended on June 3, 2019, and it is now believed that the fund will remain suspended 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. It has also been suggested that Mr Woodford was banking on these stocks rising once a Brexit deal had been 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 that are not listed on a major stock exchange are generally ‘illiquid assets’ and challenging to sell. Mr Woodford was then forced to dispose of some of the fund’s more liquid investments – such as shares of FTSE 100 companies – to release investors’ cash. 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
Standard Life’s UK Real Estate Fund and its other associated UK property funds were suspended in July 2016. It was the first of several property funds to be suspended as investors, worried by the Brexit referendum result, sought to withdraw from these funds.
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 fear that a no-deal Brexit will lead to a new wave of commercial property funds being suspended. Standard life property fund suspended was a reminder to many how illiquid property can be.
Trafalgar Multi-Asset Fund Suspended
The troubled Trafalgar Multi-Asset Fund was wound up in January 2017. With the remaining assets in the Cayman-domiciled fund paid to the trustees representing the investors. The Trafalgar Multi-Asset Fund Suspended was investigated by the Serious Fraud Office (SFO) in London (BBC News). The SFO deemed it part of a broader issue of pension liberation scams. Many investors in this fund were persuaded by cold callers to transfer funds out of safe final salary schemes.
The issues regarding the Trafalgar Multi-Asset Fund Suspended ran deep. The liquidators said that it was one of the most obvious scams they had seen with all the 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 were advised to invest 100% of their portfolio into now-suspended UCIS fund. If you have been affected by the Trafalgar Multi-Asset Fund Suspended, we will be happy to complete a full review of your portfolio without cost. We will advise what you can do moving forward to improve your portfolio performance.
Lucent Strategic Land Fund Suspended
The Lucent Strategic Land Fund was meant to bring commercial relationships, expert knowledge, and the funding to the doors of local business in the UK. The saga of the Lucent Strategic Land Fund Suspended came to boil in June 2016 when the fund was suspended over concerns about the value of the Lincolnshire Lakes property development, which the fund had invested in.
GAM Funds Suspended
Internal disciplinary issues caused problems with GAM’s absolute return bond funds, which were first suspended in August 2018 and then liquidated in July 2019, with the proceeds being distributed to the 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).
Mr Hayward was eventually dismissed for gross misconduct, and GAM’s share price fell significantly during this period (The FT). If you have been affected by GAM funds suspended, then you get in touch to have a free chat with one of our Financial Advisers. You can understand what your options are and how best to regain portfolio value.
Quadris Funds Suspended
The Quadris Environmental Forestry Fund was suspended in July 2017 after the fund was declared in default by its US lender. The fund invested heavily in teak plantations in Brazil. The fund was wound up in May 2019 and investors did not get any of their money back.
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 you have been affected by the Quadris Funds Suspended, book a free consultation for our Financial Adviser to review your portfolio and advise what you can do about this.
Strategic Growth Fund Suspended
The Belvedere Management Group Strategic Growth Fund was suspended in May 2013 without the fund managers explaining in detail the reasons behind its troubles. It may, in part at least, have been connected with the fortunes of a South African private equity firm in which the fund invested. A number of deVere Group clients were recommended to invest in this fund.
This fund was eventually closed, and the remaining investors received very little of their investment back. In March 2014, DeVere Group paid £70,000 in compensation to a deVere client who was advised to place 80% of his portfolio into the fund and who then saw its value plummet from £89,000 to around £20,000 (This is Money). Has your portfolio been impacted by the Strategic Growth Fund Suspended? Our Advisers have experience in reviewing policies with toxic or illiquid assets are well-positioned to advise how to draw a line in the sand and move forward with your portfolio with daily traded liquid assets.
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”. The Cayman-Island based fund was eventually wound up, and it is believed investors may have lost 70% of their capital (The FT).
Can You In Specie Transfer A Suspended Fund?
Five weeks after the Woodford Fund Suspension, clients of Hargreaves Landsdown were told that they could switch their investment to a rival platform. Having initially been told that their holdings were Z-class shares and that this share class was not available on rival 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.
