BOE’s Carney Says Some Funds With Illiquid Assets Built on a Lie

(Bloomberg) -- Funds that contain illiquid assets but allow unlimited withdrawals have been “built on a lie,” according to Governor Mark Carney.

The BOE Governor made the comments to parliament’s Treasury Committee in London on Wednesday, after his colleague Jon Cunliffe was asked what lessons policy makers could draw from the problems faced by embattled money manager Neil Woodford.

“On this broader systemic point around the structure of these funds, this is a big deal,” Carney said. “You can see something that could be systemic.”

“These funds are built on a lie, which is that you can have daily liquidity, and that for assets that fundamentally aren’t liquid,” he added. “That leads to an expectation of individuals that it’s not that different than having money in a bank. You get a series of problems, you get a structural problem but then you get a consumer issue.”

Woodford, once one of the U.K.’s most famous stock pickers, froze withdrawals from his flagship LF Woodford Equity Income Fund this month as he struggled to meet redemption requests following months of poor returns. Since then, loyal backers have bailed on him, clients have pulled money from other funds he manages, and he has come under fire from politicians for continuing to charge fees to investors during the suspension.

Natixis-backed H2O Asset Management has also seen clients last starting to yank money from some of its funds over concerns about illiquid holdings.

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