A quarter of UK investors are currently stuck in investments they want to liquidate but cannot.
Property investment service Experience Invest surveyed 831 UK investors about the challenges they face when it comes to exiting an investment.
It also said that 32% have tried to do so in the past five years but have not after learning they would incur unexpected fees if they did.
Around 72% of UK investors say the ease of liquidating an investment is what draws them towards particular asset classes.
This comes a month after the Financial Conduct Authority’s (FCA) chief executive, Andrew Bailey, said he is looking at stricter rules around illiquid holdings in open-ended funds.
It followed the suspension of the equity income fund of asset management giant Neil Woodford.
The liquidity problem
Roger Jones, head of equities at wealth manager London & Capital, told International Adviser: “Liquidity has become a big issue again for investors which has been illustrated by some high-profile funds getting into trouble with illiquid holdings.
“The fixed income market has become particularly challenging in terms of liquidity, with a shortage of supply in more favoured issues being scarcely traded as many investors choose to hold to maturity.
“Even in equity markets liquidity has deteriorated significantly over the last 10 years with market volumes being much lower. This causes gapping which was evident in December 2018, when the market environment became more stressed.
“The benefits of being liquid are crucial and often in more compliance markets the illiquidity premium become too small and is mispriced.”
Education
The survey also found nearly two-thirds (64%) of investors believe providers need to offer more education around exit strategies.
Some 80% want firms to be more transparent in explaining how and when they can exit an investment.
Jerald Solis, business development and acquisitions director at Experience Invest, said: “It is surprisingly common to hear of investors who, several years into an investment, are unsure of exactly how they can get their money back out.
“Indeed, our research underlines how many investors get stuck with assets they cannot liquidate – both they and the investment providers must be diligent in ensuring potential exit strategies are clearly explained.
“All investments should be made with a clear exit strategy in mind; doing so will enable the investor to manage his or her portfolio effectively.”
