Managers’ split personalities

Distributors concerned as troubled managers seek sanctuary abroad. As a case study on cross-border investment firms, the Aberdeen Asset Management story takes some beating. The embattled Scottish-based firm, held responsible by many for the furore surrounding split capital investment trusts in the UK, has decided to concentrate future efforts on promoting its institutional business in continental Europe. Heavily sold by stockbrokers and private banks as “low risk vehicles”, “splits”, as the trusts are known, are believed to have lost up to Ł3bn (E4.7bn) for once-wealthy investors. Splits are quoted funds with two classes of shares: one promising high dividends, but no guaranteed capital return, the other, known as a “zero”, pays no dividends but promises capital returns on fixed dates. After a “magic circle” of brokers, trust managers and company directors borrowed heavily to invest in each other’s funds, 19 of these vehicles have been suspended. A further eight have called in the receivers and at least 10 or 15 more are expected to collapse. The 19 suspended splits are managed by Aberdeen, BC Asset Management, Britannic, Collins Stewart, Exeter, Framlington, BFS, Isis, LeggMason, Martin Currie and Quilter. But there is scant information for worried distributors, especially if they are planning to choose partners from abroad. Even the UK’s Association of Investment Trust Companies, which supplied the list above, could not provide information on which managers are running funds at risk of going bust. And it’s no use going any higher. The UK’s regulator, the Financial Services Authority (FSA), is itself currently being hauled over the coals by Parliament for allegedly covering up warnings it had received about splits.