Woodford dampens European selector enthusiasm for illiquids

‘We would ideally not hold any illiquid assets in our client portfolios’

More than half of fund selectors polled in Luxembourg last month said they were “not interested” in illiquid strategies following a series of sagas and blowouts over the last year related to risky overexposure to illiquid assets.

Fifty three percent of fund selectors said they were not interested in illiquid assets, such as private equity, private debt and infrastructure, while a further 26% said while they would consider using them – their clients would not.

Polled at at an event held by Portfolio Adviser sister publication Expert Investor on 20 June, 16% of fund selectors said they “actively looking to put significant AUM” into illiquids, while just 5% said they were “well established users” of illiquid strategies.

Source: Last Word Research

The survey showed a fall in sentiment towards in the asset class from earlier this year.

Illiquid strategies had risen in popularity in Q4 2018 and Q1 amid weak bond yields and market volatility, according to Last Word Research which surveys hundreds of fund selectors across Europe every quarter.

Many fund selectors have become more vocal about their concerns with illiquids in recent weeks.

“We would ideally not hold any illiquid assets in our client portfolios,” Patrick Connolly, head of communications at financial advice group Chase de Vere told Expert Investor. “The problem comes about if investors don’t understand liquidity risks or are over-exposed to illiquid assets.

“However, there are circumstances where we need to accept some illiquidity in order to access other benefits. Our challenge is to manage any illiquidity in line with our clients’ circumstances, objectives and attitude to risk.”

Connolly said that commercial property is a prime example, because it can produce a reliable income and offers strong diversification benefits.

“There are potential downsides investing in commercial property in either an open-ended or a closed-ended structure,” he said. “We typically use open-ended funds even though there are liquidity concerns.”

Connolly, who is also a certified financial planner, said the Woodford affair showed the importance of diversification.

“Even if investors might think that liquidity isn’t a concern, it still makes sense to ensure that you have a properly diversified portfolio and that they aren’t over-reliant on any particular asset class, investment company or investment fund,” he added.

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