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Reducing the risks highlighted by Woodford’s woes
September 2019, LONDON - Concerns over the use of unquoted companies in open-end funds are warranted, but the closed-end structure of investment companies is well suited to this type of investing, according to the latest issue of The Cerulli Edge—European Monthly Product Trends Edition.
Cerulli Associates, a global research and consulting firm, notes that the issues faced by U.K. fund manager Neil Woodford’s firm have focused attention on unlisted companies and the risks they carry for equity investors. In the months leading up to the suspension of the Woodford Equity Income Fund, it was reported that roughly a quarter of the fund’s £3.7 billion (US$4.6 billion) assets were invested in “hard to sell” stocks, those that would have taken between 180 and 360 days to redeem.
“The liquidity crisis that ensued highlighted the structural weakness of open-ended funds that invest in assets with limited liquidity—however, it is certainly not the first time that private equity as a sector has been under pressure,” says Fabrizio Zumbo, associate director, European asset management research, at Cerulli, adding that the global financial crisis of 2008 hit this area of the market hard.
The focus on unquoted opportunities by investment companies has been fueled by the decisions of business owners to remain private for longer.
Zumbo notes that there are essentially two types of private equity investment trusts that investors can choose from: funds of funds and direct. The former invest in limited partnership structures through a range of underlying managers across various sectors and geographies; the latter are typically more specialist as the managers have the responsibility for selecting individual unlisted companies to invest directly in and then offer them the support they require.
NOTES TO EDITORS:
These findings and more are from: The Cerulli Edge—European Monthly Product Trends Edition, September 2019 Issue.
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