Cameron James - Helping Expats Secure Their Financial Future

Do you have suspended funds in your pension? That is the worst investor’s nightmare. Suspended funds can cause significant stress and typically a loss of capital. Selecting an appropriate investment portfolio is vital.

It is essential to speak with a professional to understand what your options are. This is why we offer a free review of all portfolios with suspended funds. We will outline what your options are, and then you can decide from there.

Five weeks after the Woodford Fund Suspension, clients of Hargreaves Landsdown were told that they could switch their investment to a rival platform. Having initially been told that their holdings were Z-class shares and that this share class was not available on rival platforms. The FCA has proposed new rules that would require platforms to offer clients the option of this type of ‘in specie’ transfer so investors can still own the same investments, even when they switch to a new provider.

The story for Expat clients on the remainder of the funds outlined in this article is more complicated. To in specie transfer, a suspended fund is fraught with difficulties. It may not be possible to complete an in-specie transfer, and you must hold the illiquid asset and remain with your original investment provider. This often means that the client cannot move any of their portfolios to another provider until this suspended asset has become liquid again.

What Are Suspended Funds?

Fund managers may decide to suspend a fund if the number of withdrawal requests reach such a level that they are unable to manage the fund’s liquidity. Effectively, everyone wants their capital out at the same time. Many of you will recall the ‘Run on Northern Rock’ in 2007 as people queued at the cash machines to withdraw their money.

If one of the funds you have invested in has been suspended, the first thing to establish is whether it has been ‘fully suspended’ or ‘partially closed’. In the first set of circumstances, you won’t be able to sell any of your holdings until the suspension is lifted. In the latter case, you will still be able to sell your units and or switch to another fund. In either situation, this is typically not a positive sign. We would advise speaking to one of our Advisers to understand your options and what you may be able to do to minimise any potential losses.

Woodford Fund Suspended

Neil Woodford is possibly the UK’s best-known fund manager. Unfortunately, he is now responsible for the UK’s highest-profile fund suspensions – Neil Woodford Fund Suspended. Woodford Investment Management’s Woodford Equity Income Fund was suspended on June 3, 2019, and it is now believed that the fund will remain suspended until at least December 2019. Prior to the suspension, a large number of investors in the fund opted to sell or switch their holdings. The fund had lost almost two-thirds of its value in a two-year period.

Mr Woodford specialises in picking less favourable stocks that have the potential to grow in value. As less desirable stocks are cheaper, he typically buys them in large quantities. Unfortunately, he chose the shares of numerous companies that have experienced difficult times, and as the value of the Income Fund fell, many investors started withdrawing. It has also been suggested that Mr Woodford was banking on these stocks rising once a Brexit deal had been finalised. So the fact the UK did not ‘Brexit’ as planned on March 29, 2019, exacerbated the losses.

Some of the companies the Woodford fund invested in include:

Construction group Kier – Share price fell by 41% in one day

Doorstep lender Provident Financial – Share price dropped 81% over two years

The Automobile Association – Share price fell by 88% over four years

As investors withdrew funds, the proportion of the fund’s investments held in unlisted companies increased. Shares in companies that are not listed on a major stock exchange are generally ‘illiquid assets’ and challenging to sell. Mr Woodford was then forced to dispose of some of the fund’s more liquid investments – such as shares of FTSE 100 companies – to release investors’ cash. On May 31 and June 3 – the last two business days on which the fund traded, as usual, the amount withdrawn from the fund was £296 million, which represents 8.2% of the total fund size. Of this £296 million, Kent County Council’s pension fund was seeking to sell £238 million. The fund will now remain suspended until Mr Woodford can re-position the fund so that it invests in more liquid stocks. Sometimes one investment fund will invest in another. Hargreaves Lansdown’s Multi-Manager Income & Growth Fund, for example, has around one-third of its funds invested in the suspended Woodford fund.

Learn more about this over here: Suspended Funds In Your Pension?

CJ Financial offers investment solutions and financial planning for UK expats. Including pension advice for SIPP Transfer, QROPS Transfer, final pension transfer, to investment solutions for education, retirement and lump sum.