Agonising wait

By STEPHEN WOMACK
Updated:

 

ANXIOUS investors in failing split capital investment trusts face months of waiting to see if their shares are worth anything.

Two more trusts hit the rocks last week, with Aberdeen High Income calling in receivers and Yeoman suspending trading in its shares.

Aberdeen's debts outweigh its assets while Yeoman's investments barely cover its £27 million of debts.

In all, 11 split capital trusts have asked for their shares to be suspended or have stopped trading. And a string of others have stopped paying dividends while they try to balance the books.

Now receivers running the failed trusts say it will take months to sort out the mess.

Hopes that investors will see a return are not high. Tom Burton of Ernst & Young has been appointed joint receiver of Aberdeen High Income. He says: 'Regrettably, the early indications are that there will be little, if any, cash available to distribute to shareholders.'

When a trust fails, banks are first in line for any assets. Winding up a trust takes months, leaving investors in limbo. They do not need to lodge a claim with receivers as their details are on the share register. But they should not rip up share certificates, in case there is a return.

Split capital funds' problems have been triggered by the stock market slump. The trusts attract money from investors to buy shares and then use these as security to borrow to buy more shares.

In a rising market, this would boost savers' returns. But the slump has left some trusts with debts worth more than the shares they hold.

Many trusts invest heavily in each other, compounding the problem. In May, the Financial Services Authority named 11 trusts with the highest cross-shareholdings. Four have since failed.

While pension funds are the majority shareholders in most of the problem trusts, an estimated 50,000 private investors also have shares.

null
Derek and Jo Stoneham, who live near Basingstoke in Hampshire, have lost about £30,000 through investments in the Geared Income trust. Its shares are suspended and are likely to be worthless.

Derek, 65, a retired engineer, says: 'We invested when I took early retirement. We wanted a relatively secure investment that would produce a good income.

'But the collapse has had a big impact. It has turned a carefree retirement into a careful one.'

The couple have signed up with London legal firm Class Law, which is investigating the options for action against trust managers and financial advisers. Derek says: 'Fund managers got in too deep and didn't know when to stop.'

The Association of Investment Trust Companies says up to 40 trusts could be in difficulty.

Most watched Money videos