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AIC: Long-term asset funds “will not resolve the systemic problems”

26 June 2019

Our comments on the Investment Association’s proposals for long-term asset funds (LTAFs).

The Association of Investment Companies (AIC) has commented on the Investment Association’s proposals for long-term asset funds (LTAFs).  Whilst agreeing that investment in illiquid assets offers many benefits to investors, the AIC believes that the proposals do not address the fundamental issues raised by the recent suspension of Woodford Equity Income Fund.

Ian Sayers, Chief Executive of the Association of Investment Companies (AIC), said: “The ability to sell your shares or units at a time of your choosing has been the linchpin of fund regulation for decades.  This is achieved in an open-ended fund by the manager selling assets to meet redemptions and in a closed-ended fund by investors selling their shares on the stock market. This principle should not be abandoned without careful consideration of the implications for ordinary investors. As recent events have shown, a fund does not have to hold a significant amount of illiquid assets to run into trouble.

“Looking at the FCA’s recent proposals for open-ended funds investing in illiquid assets, we appear to be heading towards a world with less frequent redemption opportunities for investors, more frequent suspensions and the likelihood that open-ended managers will hold ever greater amounts of cash, reducing investment returns.

“At the same time, this approach will not resolve the systemic problems that Mark Carney recently identified (read here) where he raised the prospect of funds which invest in illiquid assets experiencing the equivalent of a run on the banks.  It is a pity that these threats to consumers and financial stability were not explored at yesterday’s Select Committee hearing with Andrew Bailey.”

To address these issues, the AIC is recommending that an asset manager planning to offer an open-ended fund investing in illiquid assets should publish its view on why the structure chosen is in the best interest of consumers (read here).  This would include consideration of the type of investor, the nature of the underlying assets, the redemption policy, the likely levels of cash holdings and the possible impact of these arrangements on investment performance.

Ian Sayers, Chief Executive of the Association of Investment Companies (AIC), added: “There are many commercial reasons why asset managers favour open-ended funds over closed-ended funds, even when it is clear that the closed-ended structure is better suited to illiquid assets.  We believe the time has come to put consumers’ interests first.”


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  1. The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment.  Today, the AIC represents a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended investment companies and VCTs. The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help members add value for shareholders over the longer term. The AIC has 360 members and the industry has total assets of approximately £190 billion.
  2. Disclaimer: The information contained in this press release does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance.  The value of investment company shares, and the income from them, can fall as well as rise.  You may not get back the full amount invested and, in some cases, nothing at all.
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