28th April 2014
In the latest in a series of blows, Invesco Perpetual has now been hit with an £18.6m fine by the City watchdog for exposing investors to greater levels of risk than they had wanted writes Philip Scott.
According to the regulator the Financial Conduct Authority (FCA) between May 2008 and November 2012, Invesco Perpetual did not comply with investment limits which are designed to protect consumers by limiting their exposure to risk.
The extent of these losses was £5m and compensation has since been paid to the three impacted funds, including the Invesco Perpetual Managed Income portfolio as well as its flagship Income and High Income vehicles both of which used to be run by star manager Neil Woodford, until he handed over responsibility to Mark Barnett this year, ahead of his departure from the group this month.
The FCA said that the business did not clearly inform investors or explain the associated risks of its use of derivatives – complicated financial instruments – which introduced leverage into the funds.
In a statement, the FCA said: “As a forward looking regulator the FCA takes action where we see risks to consumers, not just after they suffer losses. In this case investors of all sizes trusted Invesco Perpetual to manage their money. They signed up for a certain level of risk but we found Invesco Perpetual’s actions were at odds with investors’ reasonable expectations.”
Commenting on the fine, Mark Armour, chief executive officer of Invesco Perpetual, says: “This refers to a period between May 2008 and November 2012, and the FCA has noted that Invesco Perpetual acted promptly to enhance its systems and controls. We are confident that our systems and controls are now strong, effective and compliant with all applicable regulations.
“The small number of impacted funds were fully reimbursed. In this instance, we clearly fell short of the high standards we consistently strive to deliver. However, we are pleased that this matter has been fully resolved with the FCA and is now closed.”
The FCA found that Invesco Perpetual:
– Broke the FCA’s rules designed to limit the risks to investors on 33 occasions, these breaches occurred across 15 of the Invesco Perpetual branded range of funds which represented more than 70% of the assets under management
– Did not communicate clearly or fairly with its investors because it failed to disclose the use of derivatives in the relevant simplified prospectuses, and incorrectly described the impact of using derivatives in the key investor information documents produced in 2012
– Failed to record trades on time, which meant the funds could have been wrongly priced
– Failed to monitor whether trades were allocated fairly between funds, creating a risk that some funds may have been disadvantaged.
Invesco Perpetual agreed to settle at an early stage, qualifying for 30% discount to their fine. Without this, the fine would have been £26,632,900.
Last year Invesco Perpetual suffered the news that its star employee Neil Woodford, who ran the firm’s Income and High Income funds with huge success was set to leave the group after 25 years service and set up his own fund management house, which is to be named Woodford Investment Management. Earlier this month wealth manager St James’s Place dealt another huge blow to Invesco Perpetual after taking funds worth almost £8bn away from the firm, which will be moved into Woodford’s new operation.
Woodford’s new firm will take over management of St James’s Place UK High Income, Income Distribution and UK Equity funds. The three funds have collective assets of £3.65bn, which will boost Woodford’s new operation and confirm suggestions that he is not staking out a radical new approach from his time at Invesco Perpetual.