Mark Carney’s A Few Weeks Behind Us- Open Ended Funds In Illiquid Investments Are Dangerous

Mark Carney, the Governor of the Bank of England, tells us all that open ended funds with high levels of illiquid investments are a danger and a problem. Actually, he goes further:

Mark Carney launched an attack on “open-ended” investment funds with high levels of illiquid holdings, warning they are “built on a lie” and could pose a “systemic” threat following the suspension of Neil Woodford’s flagship fund. The Governor of the Bank of England told the Treasury select committee on Wednesday that the rise of such funds had created “an expectation from individuals that it is not that different from having money in a bank”.

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Neil Woodford’s Basic Economic Problem – He’s Got A Liquidity Mismatch

We’ve all seen that wondrous suspension of redemptions in Neil Woodford’s Equity Income Fund. The interesting question obviously being well, what in buggery happened? The answer being something that’s not unusual in the slightest. There’s a liquidity mismatch in the basic set up.

This is usually most evident in banking. The banks takes in our deposits as short term loans from us to them. We can go ask for them back any time. The bank then lends them out longer term, for months or years.…

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