Fund managers ‘overly optimistic’ about how they can cope with rush of investors quitting, according to review published in wake of Woodford scandal
Fund managers are ‘overly optimistic’ about how they can cope with a rush of investors heading for the exit, according to a review published in the wake of the Neil Woodford scandal.
Many needed to be ‘more realistic’ about the liquidity of their funds, or how easily the assets can be sold off to free up money for investors, the Bank of England found in research with the Financial Conduct Authority (FCA).
‘Overly optimistic’: The review was kicked off in the wake of Neil Woodford’s demise
The review was kicked off in the wake of Woodford’s demise, after the illiquid holdings in his Equity Income Fund contributed to its implosion in 2019.
Hordes of investors tried to pull their money out of the fund after a run of poor performance, but Woodford wasn’t able to sell many of the holdings fast enough.
The Bank of England said that a ‘consistent and more realistic classification of the liquidity of funds’ assets is an essential first step’ to prevent investors suffering.
Moira O’Neill, at Interactive Investor, said: ‘The research hints at a broader open-ended issue that has been hidden under the carpet – namely that fund managers are often overly optimistic about how quickly they can sell their holdings.’