The Neil Woodford story is the latest, if most high profile, crisis to hit the pensions and investment market. It is too much to call it a scandal because, as far as I can make out, he hasn’t actually done anything wrong.
What Woodford had been offering appeared to be cast iron investments, not some get rich quick Ponzi scheme. He wouldn’t have been able to become as successful as he has without stockbrokers and fund managers wanting to invest their clients’ funds in his portfolios, and being too lazy to actually assess whether the results would be there.
The issue about the fund’s demise is that once major investors (such as Kent County Council) wanted their money back, the fund didn’t have the cash to pay it out. The money is there, just tied up in other investments.
But this is not new. Remember how many UK local authorities lost tens of millions when the Icelandic banking system collapsed?
The issue here is the replacement of workplace pension schemes with SIPPs, and subsequent legislation that has relaxed where such funds can be invested. Pension contributors are always looking for schemes that will boost their pension pots, that will make up for lost time or give them extra security in later years.
The problem is is that investing in anything is a long term strategy. Ten years ago, funds were invested heavily in British Steel, Arcadia and other retail groups, and companies like Carillion, and no-one (for more or less obvious reasons) is putting their money in those pots anymore. So the investment market has changed, and it appears that the stockbrokers are struggling to catch up with where it should be invested to give safe, predicatable returns.
This is the reason so many people have placed their faith in fixed returns investments. Mostly advertised on social media and offering anything from 5% to 50% returns (providing your money is invested for a significant period of time), the money is normally tied up in property, often in regeneration projects.
But most of theses are scams. A recent one offered investment in apartments in the former East Germany, but no work has ever been carried out on the apartments, and no-one wants to live there. So how can you expect a return on that investment when nothing has ever been done to increase its value?
But people have always been excited by the possibility of massive returns for just a little faith (and cold hard cash). That’s how fortunes were made with the advent of social media, and further back with gold, mining, railways etc.
But for every Microsoft, there’s a Sinclair. For every Docklands, there are holiday homes in Bulgaria.
For every sensible investor, there’s always one who thinks this next scheme will make us millionaires, Rodney. Maybe it’s time investment was regulated in the same way they are trying to regulate gambling.
Doesn’t seem to me to be much difference between the two