Savers who back Neil Woodford-style funds face crackdown on withdrawals under Bank of England proposals
Investors in Neil Woodford-style funds may have to wait or accept a discount if they want to pull their money out at short notice, the Bank of England has proposed.
Savers who plough their money into funds which buy hard-to-sell illiquid assets, such as property or unlisted shares, should not expect to be able to get their money back instantly at full value, the Bank said in its Financial Stability Report.
The Bank’s Financial Policy Committee has set out its initial suggestions after a review prompted by a string of savings crises.
Savers who plough their money into Neil Woodford-style funds should not expect to be able to get their money back instantly at full value, the Bank said in its Financial Stability Report
Following the Brexit vote in 2016, a number of property funds were forced to freeze savers’ money inside as they ran out of cash to repay fleeing investors.
A similar scenario happened with Woodford’s Equity Income fund this summer.
After a run of poor performances, several investors tried to pull their money out and the fund – which had a chunk of illiquid holdings – was unable to return their cash fast enough.
And this month, M&G froze withdrawals from its Property Portfolio fund. The Bank said the current system has ‘potential to cause systemic risk’.
It could push investors to sell assets like property quickly, squeezing prices and leading to a sector-wide crash.
The Bank has not decided on specific measures, but said funds must make it clear that investors will either have to wait a long time to get their money back at the going rate, or accept a deep discount if they want the cash immediately.
* All of Britain’s top lenders could weather the worst-case scenario in the event of a No Deal Brexit, or a financial crisis worse than the 2008 crash, figures have shown.
The banking sector is ‘resilient to and prepared for the wide range of UK economic and financial shocks that could be associated with a worst-case disorderly Brexit’, the Bank of England said on Monday.