An open and shut case

Ian Sayers, the Chief Executive of the Association of Investment Companies wrote an excellent letter printed in The Times on 6 June.

In it he states that illiquid assets should not be held in open ended funds. Even if the liquidity mismatch can be handled the need to hold cash to meet redemptions must reduce returns. The catalyst for this correspondence is, of course, the current trials and tribulations of Neil Woodford’s UK Income Fund.


Many commentators have cited the presence of unlisted holdings in his portfolio as a key contributor to its demise. Time will tell whether this is true or not. However, what Ian Sayers is getting at in his letter is that unlisted securities are better held within the investment trust structure.

Exposure to private companies is becoming more and more important as fewer companies choose to go public or at least remain private for longer.

Historically the closed ended structure has proved an effective way to gain exposure to the opportunity that private companies offer. Crucially there is no need for trusts to sell down holdings in times of stress to fund redemptions. Investors are simply free to trade trust shares as they see fit at the market price. This in turn allows the managers of these trusts to be patient and focus long term on their primary task of investment.


Furthermore, exposure to private companies is becoming more and more important as fewer companies choose to go public or at least remain private for longer. For Actual Investors such as ourselves accessing the sometimes exponential growth of these companies has become a necessity.


It is the investment case of each company that really matters not whether it is listed or unlisted and we are mostly ambivalent as to whether a firm IPOs or not. But back to Mr Woodford. His UK Income Fund may not recover but it is more than likely that his eponymous Woodford Patient Capital Investment Trust will weather the storm.

James Budden

Marketing and distribution director

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