Funds designed to fail

[LooseCannon101]

Neil Woodford's fund would have been OK if it had been structured as an investment trust i.e. a closed fund. How many open ended investment companies (OEICs) are there that are stuffed with illiquid assets?

Before such a company is registered, it would be great if the regulator were to specify the type of assets that the company can hold, especially if the company were to be marketed to the general public.

The average punter receives marketing material from his/her broker, newspaper and business magazine who all stand to gain when the company is brought to market. Regulation seems more concerned with dotting the i's and crossing the t's than with protecting the public who tend not to look under the bonnet before parting with their cash.

[Alaric]

How many open ended investment companies (OEICs) are there that are stuffed with illiquid assets?

Not very many, if they are following the rules, as the limit is 10%. That's why an Investment Trust format is preferred for more "exotic" investments.

Woodford tried to avoid the 10% limit in the OEIC by using the little known Guernsey stock market. Something like setting up a Guernsey based IT to hold his unquoted investments.

[mc2fool]

Neil Woodford's fund would have been OK if it had been structured as an investment trust i.e. a closed fund. How many open ended investment companies (OEICs) are there that are stuffed with illiquid assets?

All of the bricks-and-mortar "direct" property funds for a start. Note the large amount of cash these typically hold, presumably to be able to deal with a flood of redemptions without having to close the door (as some did in 2008/9).

https://www.trustnet.com/fund/price-per ... ageSize=25

[StOmer]

As I read it, Woodford simply paid for poor performance. The very high level of redemptions forced him to seel liquidity causing his illiquid assets to increase as a percentage of the OEIC. Once it stepped above the 10% limit the regulator failed to act allowing Woodford time to register some stock in Guernsey. Had Woodford not been the worst performing fund in his sector then it is likely he could have gotten away with mixing it up, I read that the illiquid stock was contributing a higher performance to the OEIC which shows how badly the overall portfolio was doing.

[scotia]

Neil Woodford's fund would have been OK if it had been structured as an investment trust i.e. a closed fund.

It depends what you mean by OK. An IT would likely have shot up to a high premium on Woodford's reputation and his initial performance, then dived to a substantial discount when the problems became obvious. So sellers could have got out with a substantial loss to NAV, which would be amplified if they had bought at a premium. On the other hand, OEIC buyers never paid any premium, and will (albeit eventually) get NAV with no discount. Unless I had an urgent need for cash, I know which I would have preferred. But then in my case neither would have happened since I did not have a favourable opinion of Woodford. His glory days were largely based on Tobacco and Pharmaceuticals, but in his last 5 years at Invesco his magic disappeared, and I seem to remember that a tracker would have out-performed him. Then when he started his own funds, he tried to find a new market niche that would produce results - and it didn't. When later I learned that he was investing in Cold Fusion I was amazed.

[LooseCannon101]

How many open ended investment companies (OEICs) are there that are stuffed with illiquid assets?

Not very many, if they are following the rules, as the limit is 10%. That's why an Investment Trust format is preferred for more "exotic" investments.

Woodford tried to avoid the 10% limit in the OEIC by using the little known Guernsey stock market. Something like setting up a Guernsey based IT to hold his unquoted investments.

I think a 10% holding in illiquid assets is too much. In my opinion, an OIEC should not be allowed to have any illiquid assets.

Use of the Guernsey stock market sounds extremely dodgy to me.