Bank of England governor Mark Carney has warned that more investors wanting to withdraw their money may be held hostage by investment funds built on a lie.
His message comes as investors with Neil Woodford’s Equity Income Fund remains suspended and with millions of pounds of cash frozen for another month.
Woodford’s Equity Income Fund stopped taking or paying money on June 3 and will remain frozen until the end of July, announced Link Fund Solutions, acting as the fund’s director.
“The suspension will ensure investors’ interests are protected,” said the statement.
“It affords Neil and the team the required time to execute the changes to the portfolio that we have outlined previously, in order to deliver the best possible outcomes for you, our investors.”
False promises to investors
Without naming Woodford, Carney argues that investment funds desperate to sell risky shares pose a danger to the global financial system.
He also claims promises to savers that their money can be accessed quickly are untrue because if their investment is lodged with difficult to sell assets, they could wait months to get their hands on their cash.
“This is a big deal,” said Carney.
“You can see something that could be systemic. These funds are built on a lie, which is that you can have daily liquidity for assets that fundamentally aren’t liquid.
“That leads to an expectation of individuals that it’s not that different than having money in a bank.
“The way this is interacting with the structure of the international monetary system is challenging.”
Bank of England may step in
Trade body the Investment Association reckons British funds hold £1.2 trillion, while globally, this adds up to £24 trillion which savers believe they can withdraw straight away.
Carney signalled the Bank of England might take action to help investors.
‘We’ve been raising this internationally,” he said. “Ultimately if we can’t get the world to move, we’re going to have to take our own responsibilities here.
“’Something that better aligns the redemption terms with the actual liquidity of the underlying investment is infinitely preferable to the situation we have today.”