Investing in long-term asset funds should be left to professional investors to prevent another Woodford-style debacle from happening in the future, the Association of Investment Companies (AIC) said.
The warning follows a study by Research in Finance that found 86% of those invested in the former Woodford Equity Income fund suffered a negative impact on their finances after the fund was suspended in mid-2019.
More than half reported a negative impact on their general wellbeing, which has left 77% of former investors with less trust in the investment industry than they had before.
A total of 81% of private investors believe that the Financial Conduct Authority (FCA) should strengthen protections for investors where illiquid assets are held in open-ended funds.
Richard Stone chief executive of the AIC said: “The collapse of Woodford Investment Management two years ago shook the entire investment industry, and we are still dealing with the aftershocks. This research reminds us of the financial and emotional impact on individual investors, which is still being felt.”
Stone added that the investment industry has “lessons to learn” from what happened, and as an industry still has work to “restore trust”.
The findings follow the UK investment industry’s plans to launch the Long-Term Asset Fund (LTAF) structure, a new open-ended fund vehicle that allows greater exposure to hard-to-sell illiquid assets than was permitted for the Woodford Equity Income fund.
“To prevent investors getting burned again, the LTAF must be based on robust regulatory standards and should not be accessible to the general public,” said Stone.
“Broad distribution of the LTAF before it is tested through an economic cycle risks exposing investors to fire sales of assets, suspensions and fund failures which can arise from liquidity mismatches, as we saw with Woodford Equity Income.”
Among investors in Woodford’s fund, 83% were not fully aware of their exposure to small, unlisted companies, while 20% were not aware at all. Over a third of private investors were unaware of the possibility that an investment fund might suspend trading.
Stone said: “We wholeheartedly support the FCA’s Consumer Investment Strategy objectives seeking to increase the levels of investment amongst private individuals, but to increase consumer engagement with markets it is vital that investors have confidence and trust.”
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