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Are your funds suitable for you? 


There are thousands of investment funds available to invest in. Besides the traditional ones which invest in equities, bonds and real assets, you may come across alternative opportunities which sound tempting, such as funds which invest in property, timber and fine wines. Often the more esoteric ones advertise higher rates of return.


How do you choose?

The most important rule of investing is that your overall portfolio should be specifically designed around your personal objectives, circumstances, time horizon and risk tolerance. You should hold a diversified mix of assets as this will help reduce the overall risk of your portfolio. You need to keep this in mind when considering a new fund, and how it fits with your existing holdings.

Always remember: if it sounds too good to be true, it probably is.

We often come across cases where people are invested in funds which do not suit their needs. For example, they have a low risk appetite yet are in higher volatility funds.

We also hear about suspended or liquidated funds, leaving investors without access to their capital.

Often these illiquid funds are based in jurisdictions with low levels of supervision and compliance. This is a lesson for everyone to be diligent when choosing funds.

Funds which invest in non-traditional scheme assets are known as Unregulated Collective Investment Schemes (UCIS).

The UK’s Financial Conduct Authority (FCA), formerly the Financial Services Authority (FSA), has had concerns about them. Consumers have lost substantial amounts of money investing in such products in recent years.

It found that three out of every four sales of UCIS products to retail clients were unsuitable for the investor and many promotions breached the marketing restrictions.

The FCA has now published rules to ban the promotion of UCIS and certain close substitutes (such as Traded Life Policy Investments) to the vast majority of retail investors in the UK. It explains:

“These assets may sometimes appear to offer better returns with less volatility than more usual investment types but they are often actually higher-risk investments. For example they may be illiquid, difficult to value and prices may be volatile.”

They may still be promoted to “sophisticated” and “high net worth” investors.


Here are some examples of illiquid funds

Many investors were caught out with property funds, such as Brandeaux’s Isle of Man domiciled ground rent and student accommodation funds. Redemptions were suspended after the credit crunch hit. Then on 1st July this year Brandeaux advised investors that it had suspended all its eight funds because of problems with market liquidity and pressures from investors wanting to redeem their investments.

In May, the Cayman Islands registered Managing Partners Ltd imposed a redemption gate (which limits the number of withdrawals) on its Traded Policies Fund because of concerns over the low levels of available liquidity.

The most high profile traded life policies case is the EEA Life Settlements Fund. It suspended dealings in December 2011 after a high level of redemptions followed the FSA’s proposed ban on sales to retail clients.

In February, Global Mutual suspended shares in its Strategic Growth Fund after a high level of redemption requests. The fund contained a number of illiquid assets and could not settle redemptions without unfairly disadvantaging remaining investors. The fund is domiciled in Mauritius and administered in the Channel Islands.

United Asset Management’s Strategic Growth Fund was also suspended in February after a long period of poor performance.

The Australia based LM Investment Management Limited placed itself into voluntary administration in February. It ran eight funds.

There have been complaints against some financial advisers in the UK for mis-selling Stirling Mortimer property funds. One fund invested in a property development in Spain, but after holiday homes market collapsed the developer could not pay proceeds due to Stirling Mortimer. The ombudsman upheld a complaint against an adviser for having sold a fund which is “high risk” and “illiquid” and inconsistent with the client’s attitude to risk. He found concerns with the fund’s structure and said the prospectus may have been factually incorrect.

“Sophisticated” investor funds tend to be complex with inherent risks. Investors often misunderstand the level of risks they are taking. It is often difficult to do due diligence on these funds due to the nature of the holdings.  

Regulation is very important when considering a fund. While most financial centres have a regulatory system, the level and reliability varies across territories. You want your investments to be supervised by a body on a par with the UK’s Financial Conduct Authority, considered one of the best in the world.

It is equally essential to evaluate the regulation of the adviser making the recommendation. They should carry the highest degree of regulation and only recommend authorised funds from highly recommended jurisdictions.  

At Blevins Franks, we are regulated by the Financial Conduct Authority and bound by its “treat your customers fairly” code of conduct. We carry out due diligence on everything we consider recommending to our clients. If we have any concerns, or cannot get enough information, we would not recommend it.

For advice on your funds and portfolio planning, speak to an experienced, trustworthy and regulated wealth manager like Blevins Franks.

Blevins Franks Financial Management Limited is authorised and regulated by the Financial Conduct Authority in the UK, reference number 179731. Where advice is provided overseas, via the Insurance Mediation Directive from Malta, the regulatory system differs in some respects from that of the UK.

To keep in touch with the latest developments in the offshore world, check out the latest news on our website www.blevinsfranks.com.

You may also contact our partner Paul Montague on Tel: 922 716 079 or paul.montague@blevinsfranks.com