Woodford fund suspension watched amid ‘spillover’ fears, says Bank policymaker
The suspension of Neil Woodford’s equity income fund could become a “very big problem” if it undermines investor trust in the financial system, according to a Bank of England policymaker.
Anil Kashyap, an external member of the Bank’s Financial Policy Committee (FPC), told MPs on the Treasury Select Committee the Woodford saga was being watched closely for signs of “spill over” into the wider system.
He said, while the fund’s suspension is not a financial stability risk at the moment, it could pose problems if it sparked a run on similar investments.
He said: “I don’t think Woodford per se creates financial stability risks, but if it undermines confidence in the system it could be a very big problem.
“It’s a very visible thing and has got people worrying about whether or not it is going to be present elsewhere.
“We’re going to keep watching it and if it ever gets to the point where there’s substantial assets in a vehicle like that, that could give rise to widespread spillovers, we’d have to do something about it,” he added.
In a hearing on his reappointment for a second term to the FPC, the US-based expert said even a modest sized investment vehicle could potentially “destroy trust” in the system, which could lead to a run of investments.
But he said the threat of an asset fire sale, where they are sold quickly on the cheap, creating a so-called negative feedback loop was only likely if there was a lot of assets being sold at once.
The Woodford Equity Income Fund has blocked investors from withdrawing their cash since earlier this month, after millions of pounds had previously been taken out following a run of poor results.
Due to many of the investments being made into unlisted companies, selling the shares to repay the cash has proved difficult.
Mr Woodford has said he will no longer invest in unlisted businesses and is shifting his clients’ cash into stock market shares that are easier to sell in the future.
A date for when customers can withdraw their money has not yet been announced.
Online fund supermarket and broker Hargreaves Lansdown his among those caught up in the saga, due to the heavy promotion and commission received from Mr Woodford’s business.
Hargreaves Lansdown boss Chris Hill said on Monday he would not take a bonus until investors are able to access their money in the Woodford fund.
Another Bank policymaker, deputy governor for monetary policy Ben Broadbent, last week told the Treasury Select Committee investment managers are right to block investors from withdrawing cash from funds to prevent asset fire sales.
He warned there could be a wider UK financial stability risk if funds were forced to sell off investments quickly at values below their market price.
But he stressed it was important that investors understood that suspensions were a possibility that could see them blocked from accessing their money.