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Fund liquidity woes have not disappeared

The collapse of the Woodford Equity Income fund may have done a great deal of harm to investors, but the hope is we can at least avoid similar crises in future. The silver linings are there to be found if you look hard enough: the scandal has served as a fresh warning that open-ended funds and illiquid assets are not a good mix, while also forcing investment managers to look more closely at how quickly and easily they can sell their holdings.

In fairness, fund managers have generally held off from including the likes of unlisted companies in open-ended funds, as Neil Woodford did. But other illiquid holdings are still causing trouble in certain instances. Take the recent temporary suspension of 7IM's Income Portfolio and Absolute Return Portfolio funds because of “ongoing uncertainty around the continued illiquidity of two assets which cannot currently be sold”.

Both funds list a decent level of exposure to Xenfin Securitised Debt Fund, a vehicle that has been suspended since 2019. The 7IM funds have also both held Drum Income Plus Reit (DRIP). In March, this trust’s board warned that it had failed to reach a decent level of scale, making it difficult to generate “any meaningful liquidity” in the shares. The board now plans to carry out a strategic review into the trust’s future.

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