First liquidation of an Open Ended Investment Company
UK insolvency first
Today Cameron Gunn was appointed provisional liquidator of an “Open Ended Investment
Company”, more commonly known as an “OEIC”, with the full support of the Financial
Services Authority.
The OEIC, known as the Arc European Property Fund, was an unregistered company that
raised £4 million in capital from some 300 UK investors to invest in the European property
market. In the last eighteen months, the value of the fund’s investments plummeted, due
mainly to the poor general performance of the European property market.
ReSolve is now tasked with protecting the fund’s assets from creditor action and preserving
any value in the assets until a full liquidation hearing takes place – due to be early March, at
which time it is anticipated that Cameron Gunn will be appointed permanent liquidator. At
this point in time assets will be sold for the benefit of the fund’s investors.
Comments What do you think?
Investment Man | 17:31 25 January 2010
OEICs almost by definition can't go bust because of the open ended or fluent nature of the business, easier to think of them as large pools of stocks which can be simply sold off at a moments notice to return the investment to the share / unit holders.
Real problem for investment funds that invest in property however is that property isn't a liquid asset. If half the unit holders of an OEIC (or ICVC : investment company with variable capital as it's otherwise known) just up ship and demand their investment back from the company management, which they're entitled to do, then the management company will have to have the cash to pay them.
Standard Life or maybe it was Scottish Widows had this exact problem when the property market went to the dogs. Their repsonse was to (within the rules of the fund) to time limit when investors could get their cash back in property funds. Which would then give them time to sell properties and make cash available.
Anyone have any idea why Arc didn't employ a similar strategy? Or is it a wider case of Arc going bust and thus the OEIC following them given the intrinsic link between the two?
Investment Man | 17:36 25 January 2010
They can also suffer issues with liquidity as mentioned above in very rare cases. Taking into account the incredibly strict regulations surrounding authorised investment vehicles just makes it extremely unlikely.
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