Fund suspensions are nothing new and unfortunately such incidents will continue to happen in the future. Naturally when a fund does suspend, this can invalidate a whole client portfolio from a suitability perspective, leaving organisations liable for the advice they provide.
Remarkably access to the relevant information to spot an impending fund suspension has never been easier to obtain. There is a realisation that quant analysis and asset allocation, the historic basis used by advisers when determining risk, is only part of the story.
The need for ready access to fund due diligence information has been recognised and is being addressed by making key, hard to get, information readily available, Paul Gaston from AssetQ says “the adviser community is starting to cotton-on to the need for operational due diligence data”. The recent events at Woodford serve to emphasise the point.
The larger wealth firms and more sophisticated fund selectors use many data points to assess the health of a fund. Here are some further key metrics one might consider when assessing a fund’s suitability.
“Though knowing the above information is absolutely necessary, being notified of changes to such key metrics is also essential to track ongoing fund suitability”.
The need for technology is no longer up for debate, particularly when there are a large number of fund holdings, “keeping track of change is practically impossible unless you can afford to employ hordes of people” says Gaston.
As of today, of the ‘000s of funds on the leading fund due diligence platform AssetQ, 34 funds have weekly liquidity of less than 15%, a further 58 funds have cash borrowings, 583 funds hold less than 5% cash, 293 funds hold unlisted securities, and 234 funds are permitted to hold more than 10% in unlisted securities.
Having ready access to key due diligence information is an area the regulator has identified to aid investment transparency, the emergence of market utilities, such as, AssetQ, offers evidence that the market is starting to act, to become better informed and kept abreast of change.
Eric Dickinson, Independent Consultant
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