Inside view
“But being practitioners, we know what real liquidity is. It is plain to see that liquidity, from a secondary point of view, is not the worst it has been for a number of years. For anybody that has been investing or working in corporate bonds, the experience of March 2009 shows that the market was the least liquid then.”
He adds: “It is always possible to sell things, it is just reflected in the price. You do not know how much that price will fall but there will always be a bid. That applies to bonds, property, equity – all these areas have the same issues.
“If you want to sell a great deal of something and the market does not particularly want it at that time, then the price will adjust downward.
“Liquidity in 2009 was a problem, and it was a great time to buy corporate bonds. In 2007, when liquidity was perfect, that was an awful time to buy corporate bonds.”
Woolnough stresses that investors should understand that if they buy a bond when the market is considered illiquid, then that illiquidity should be reflected in the price.
“If they are a long-term investor, they should be able to sustain and keep that illiquidity. If, on the other hand, they are buying assets for the short term, and they are nervous holders, they have to be concerned because they might have to redeem their money. As an investor, you want to buy assets that have some element of illiquidity to them because that is what you get paid for. You should always think about your timeframe.”
Clear convictions
Anyone who has invested in Woolnough for the long haul should be happy with their returns. But whether investors will allocate money to him – and indeed bonds – to the same extent over the coming decade is open to debate.
“At the end of the day, I am saying duration is not particularly attractive,” he says, stressing he understands why investors may have decided to pull money from Optimal Income. “What we have seen in our funds is that the European investors, who have traditionally driven the growth of the fund, know they have found a fund manager with a different view from the rest of Europe.
“We have had a very good track record but we have got the point now where maybe they want to take more risk.”
While he does invest currently, Woolnough reveals he has not always had his own wealth invested in his funds. Straight away he is nervous about how this might look in print but he adds that those fund managers who claim to have all of their money in their own funds are either liars or imprudent. “I drive myself to run the fund properly but as an investor should diversify, I must also diversify. If I have got all this investment risk doing a good job in these funds, why do I compound that risk by putting more in?
“By definition, my career and my life are entwined in the funds that I run. Whether I have £x in the fund that goes up or down by x% is irrelevant compared with the amount of work I am doing on that fund.”
With that, Woolnough is called away. My lasting impression is of an individual who is as frank and honest about his career, and occasional failings, as any fund manager I have met. In many ways, the size of the strategies he runs is irrelevant – he is clear on his convictions and he will stick by them.
