Daily Mail

Open funds feel the burn

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Little has been heard about savings during the General election campaign. From a Conservati­ve point of view, that is just as well. it has been a year of shattering problems, with the suspension of the £2.5bn M&G Property Portfolio fund just the latest.

this week we have had insight into the shockingly lax policing of Funding Secure and savers in Neil Woodford’s frozen income Focus fund have been kicked in the teeth.

Meanwhile, in spite of the reassuring choice of Schroders as managers of Woodford’s Patient Capital trust, chairman Susan Searle, who was meant to protect the interests of investors (including this writer) remains in place in spite of conflicts of interest and a questionab­le asset swap earlier this year with Woodford’s flagship equity income fund.

the £3.4bn outflow from property funds over the past year is not a shock. A combinatio­n of Brexit uncertaint­y, Jeremy Corbyn’s attacks on wealth and, in M&G’s case, over-exposure to a flounderin­g retail sector has wreaked havoc.

One has only to look at the performanc­e Alex Brummer CITY EDITOR of the retail property outfit intu to understand the pain in the sector. After the postrefere­ndum debacle in 2016, when much of the sector was gated, the Financial Conduct Authority (FCA) had a real opportunit­y to impose its will. the Bank of england has been warning of the danger of the mismatch of assets in open-ended funds for years.

Simply to blame eU regulation for the failure to take special action – of the kind taken last week to curb mini-bond promotion and sales – is not good enough. Savers buy funds to protect themselves from the risk of direct holdings. the reality is that these savers would probably have been safer if they had bought shares in land Securities, British land or warehouse specialist­s Segro.

At the time of the financial crisis, the banks had two key problems. they lacked the ready cash or liquidity to pay out customers when they rushed to the AtMs and they lacked a safety cushion of solid assets. that has been more or less resolved, and it would require a 50pc subsidence of property prices to cause anxiety.

the same ought to be true of property funds. they need to hold more cash and could do with a second line of defence with holdings of government securities.

the ‘open’ structure needs reform. Banks and building societies have timed deposits – money that can only be withdrawn over fixed periods from a month to five years.

A solution might be to turn funds into investment trusts in which shareholde­rs can sell down when they want and weakness is expressed in the discount of asset values to share price. this is not perfect either, because of complexiti­es such as the use of warrants, a kind of derivative, as well as excessive leverage.

there is much to be done if confidence in the asset-management industry is to be restored. Regrettabl­y, the FCA and its chief executive, Andrew Bailey, have not risen to the challenge.

Minefield

IN THIS age of environmen­tal, social and governance concerns, it should not be surprising that Glencore is in the headlights. the mining and trading firm operates across 150 sites in some of the most ethically challengin­g countries in the world including Venezuela, Democratic Republic of the Congo and Nigeria.

Bribery is a way of life in many nations and economists regard it as a cost of doing business that falls away as governance improves. the interventi­on of Britain’s Serious Fraud Office comes more than a year after the US Department of Justice launched its corruption probe.

Many of the SFO’s biggest victories have been in bribery cases because the burden of proof is much lower than in fraud cases. All of this may be a bit late in the day.

Chief executive ivan Glasenberg has been reshaping his top team and has let it be known that he too will be heading for the exit. there has been a concerted effort to improve behaviour.

Glencore is not alone. Several other mining giants have also been the subjects of bribery allegation­s.

Unfortunat­ely, it comes with the territory.

Moral hazard

LARRY Fink’s efforts to persuade firms in which his $6.84trillion fund management group Blackrock is invested to clean their stables is wearing thin. his favoured successor, Mark Wiseman, is stepping down because of a Metoo moment. Poor show.

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