BoE official warns suspending fund redemptions can be ‘double-edged sword’

During his speech, Financial resilience and economic earthquakes, at the University of Warwick yesterday, Bank of England (BoE) senior official Alex Brazier emphasised that suspending funds can be a “double-edged sword”.

Brazier added that the threat of imposing such measures imminently can “create an incentive to be at the front of the redemption queue”.

Brazier, a member of the bank’s Financial Policy Committee and executive director for financial stability strategy and risk, highlighted that equity funds that committed to blue-chip shares are able to cope better with calls from investors for their money back.

Despite not mentioned Neil Woodford or his products, the statement from the BoE official came following the suspension of the star trader’s flagship fund.

“Of course, redemptions can be suspended – funds can be gated – to limit the selling pressure. But such measures are a double-edged sword. They can allow time for an orderly re-structuring of a fund, avoiding unnecessary fire sale pressure, but the expectation that such measures could be imposed tomorrow can create an incentive to be at the front of the redemption queue today,” Brazier said.

He added that “any incentive” for investors to be at the front of the queue might be “detrimental” to the resilience of finance for the real economy. “The emerging evidence is that companies whose existing liabilities are subject to selling pressure from funds tend to cut back new issuance and – presumably to protect their cash flow position – cut both investment and employment,” he stated.

According to Brazier, it is striking that the more illiquid or difficult to trade the assets in a fund were, the more aggressively its investors withdraw their funds as prices of the assets fall.

He said: “When a fund holds assets traded almost instantly on exchange – like blue-chip equities – investors tend to sit on their hands.

“At the other end of the spectrum, investors in open-ended funds holding commercial real estate – which, on average, takes 298 days to sell – take out 0.6 per cent of their money for every 1 per cent fall in the value of their funds. Investors in corporate bond funds behave similarly.”

Brazier acknowledged that the Financial Conduct Authority is finalising rules for funds investing in illiquid assets to strengthen liquidity management, but stressed that this is a global issue that needs to be tackled.

“These are global issues. So macroprudential authorities across the world will need to review new global asset management rules,” the BoE director highlighted.

    Share Story:

Recent Stories


FREE E-NEWS SIGN UP

Subscribe to our newsletter to receive breaking news and other industry announcements by email.

  Please tick here to confirm you are happy to receive third party promotions from carefully selected partners.


NEW BUILD IN FOCUS - NEW EPISODE OF THE MORTGAGE INSIDER PODCAST, OUT NOW
Figures from the National House-Building Council saw Q1 2025 register a 36% increase in new homes built across the UK compared with the same period last year, representing a striking development for the first-time buyer market. But with the higher cost of building, ongoing planning challenges and new and changing regulations, how sustainable is this growth? And what does it mean for brokers?

The role of the bridging market and technology usage in the industry
Content editor, Dan McGrath, sat down with chief operating officer at Black & White Bridging, Damien Druce, and head of development finance at Empire Global Finance, Pete Williams, to explore the role of the bridging sector, the role of AI across the industry and how the property market has fared in the Labour Government’s first year in office.

Does the North-South divide still exist in the UK housing market?
What do the most expensive parts of the country reveal about shifting demand? And why is the Manchester housing market now outperforming many southern counterparts?



In this episode of the Barclays Mortgage Insider Podcast, host Phil Spencer is joined by Lucian Cook, Head of Research at Savills, and Ross Jones, founder of Home Financial and Evolve Commercial Finance, to explore how regional trends are redefining the UK housing, mortgage and buy-to-let markets.

The new episode of The Mortgage Insider podcast, out now
Regional housing markets now matter more than ever. While London and the Southeast still tend to dominate the headlines from a house price and affordability perspective, much of the growth in rental yields and buyer demand is coming from other parts of the UK.

In this episode of the Barclays Mortgage Insider Podcast, host Phil Spencer is joined by Lucian Cook, Head of Research at Savills, and Ross Jones, founder of Home Financial and Evolve Commercial Finance.