Is This Like a Money Market Fund Breaking the Buck

A major equity fund in the UK has suspended redemptions, meaning that investors cannot access their funds, which are normally supposed to be available within 24 hours.

This sounds a lot like what happened to institutional money market funds during the financial crash in 2008, when you could not redeem from funds that were supposed to be a safe as cash:

There’s still no sign of relief for the hundreds of thousands of investors whose money is trapped in one of the UK’s biggest equity funds, the Woodford Equity Income Fund. The fund is supposed to offer its shareholders daily liquidity, meaning they can take part or all of their money out any day of the week. But that was before a slow-motion (but accelerating) run on the fund forced its manager, hedge-fund legend Neil Woodford, into taking the last-gasp decision, on June 3, to place a ban on redemptions. Since then, investors have been unable to access their money. And it’s not clear how much longer this could go on.

The problems at Woodford have raised serious questions about just how liquid other equity funds in the UK may be. In the past few days, UK’s biggest broker, Hargreaves Lansdown announced that it plans to remove the Lindsell Train UK Equity Fund, the largest managed UK shares fund, and the Lindsell Train Global Equity Fund, from its Wealth 50 Best List due to liquidity concerns, which prompted shares in Lindsell Train Investment Trust to tumble 22% on Friday.


The Woodford Equity Income fund has performed terribly for the past two years. Bad bets were made, often on unlisted assets, resulting in big losses, which in turn triggered a cascade of redemptions as the sharpest investors began yanking out their money. The total amount under management at Woodford has steadily shrunk by almost two thirds since 2015, from £10.2 billion to £3.7 billion.

At the very least, Woodford’s investors will have to hang on for another three agonizing weeks, when the decision to gate the fund is scheduled to be revisited. When the last 28-day review period came up, around a week ago, Woodford told the UK’s Financial Conduct Authority that the fund was still not ready to reopen its doors.


Most of Woodford’s liquid assets are already gone having been sold off when the giant flood of redemptions began. By this spring, only three of the fund’s 105 holdings were FTSE 100 companies, and only 26 paid out dividends, which is highly unusual for a fund that is supposed to be almost exclusively devoted to equity-income.

In recent weeks Woodford has reduced his holdings in Raven Property and Horizon Discovery, two long-term investments, as well as other listed companies, including BCA Marketplace, New River Reit and Oakley Capital Investments. But most of the remaining assets are highly illiquid, which means selling them will be a lot more difficult, unless at a very heavy discount.

By EU law, equity funds like Woodford’s are allowed to hold a maximum of 10% of their portfolio in transferable securities that are not dealt in an “eligible market” such as the FTSE 250. To get around this rule, Woodford reportedly bundled up his fund’s illiquid unlisted assets and listed them on the minuscule Guernsey-headquartered International Stock Exchange, which despite its impressive-sounding name has barely any trading activity at all.

This was enough to lend his most illiquid assets the appearance, albeit flimsy, of liquidity. The move was within the letter — though not the spirit — of the law, according to the FCA chief executive Andrew Bailey. Mr Bailey told the Commons Treasury select committee that Woodford Equity Income fund was “sailing close to the wind,” adding that “listing something on an exchange where trading does not actually happen, as far as I can see, does not actually count as liquidity.”

So, they engaged in dodgy bookkeeping combined with a run on the fund.

Yet another dodgy player at the big casino.

They have learned nothing.

H/t Naked Capitalism.

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