Readers of this blog will have seen this week the report by portfolio-adviser.com (@PortfAdviser) that the FCA has dismissed claims that it was too slow to act to the Woodford and M&G fund blow-ups:
In fairness to the FCA (bear with me), their perceived omissions and its basic failure to accord WEIF investors with some kind of “protection” are symptomatic of the historical attitude of European financial regulators to the UCITs model. The genesis of UCITs was as a liquid investment product, highly regulated and regarded as “safe” for investment by small, retail investors. But for more than a decade the UCITs envelope has been pushed by EU states and regulators to allow managers more and more able to replicate, sometimes in a synthetic way, riskier investment techniques traditionally available only to managers of hedge funds. Under UCITs rules, Illiquid investments have a very circumscribed place in the fund’s portfolio, but increasingly financial regulators in Luxembourg have permitted the shoehorning of illiquid assets into UCITS and UCITs wrappers. The FCA, doubtless under pressure to maintain London’s competitiveness with Luxembourg and Ireland, has simply followed suit.
One positive outcome of the Woodford saga would be a revision by the FCA of UCITs rules and an attendant evaluation of the risk analysis that ought to be applied to a series of model UCITs portfolios and investment strategies within the parameters and constraints of the current UCITs rules. The current regime allows some managers, if they are so inclined, to materially shift the risk profile of their UCITS fund, after taking investors’ money. This cannot be permitted to continue unchecked.
Now, all this will be of small consolation to the thousands of Woodford investors whose only current recourse, they are told, is potentially against an outfit with whom many of them had only a tangental relationship (commercially speaking, at least): Hargreaves Lansdown. We all agree that Woodford’s investors have been ill-used, and the ambulance-chasing law firms that are solicitous of their confidence would do well to moderate some of the representations that they are making about the susceptibility of Hargreaves Lansdown to legal recourse: https://matthewfeargrieve.blogspot.com/
As for Mr. Woodford? In China, as a prelude to flogging a new fund, apparently. Meanwhile, in other news: coronavirus …
Matthew Feargrieve is an investment funds consultant. You can read more of his blogs here: https://matthewfeargrieve.blogspot.com/