Aberdeen mulls hardship fund for split cap investors

A number of fund managers that offered split capital investment trusts are considering setting up a hardship fund to compensate investors who have been badly burned by the collapse of the controversial funds.

A number of fund managers that offered split capital investment trusts are considering setting up a hardship fund to compensate investors who have been badly burned by the collapse of the controversial funds.

Some 15 fund managers attended a meeting in the City last week to discuss the move, in an attempt to avoid potentially having to compensate all investors who have lost money. Those at the meeting included Aberdeen Asset Management, which is most exposed to the split cap problem because it manages 19 of the funds. Senior figures at Jupiter, Govett, Investec and Framlington were also present.

The idea of a hardship fund is at an early stage. It has been proposed by Lewis Aaron, formerly head of investment trust research for BZW and who now runs his own company, Fundamental Data.

It is understood that fund managers would club together on the basis that money would be paid out only to investors who could prove they have suffered considerable hardship due to losses from split cap investments. Setting up a hardship fund was discussed on the basis that no fund manager would have to admit they were at fault in setting up or marketing split caps.

The companies are keen to be seen to be doing something for beleaguered investors as the Financial Services Authority is investigating whether certain fund managers colluded to maintain artificially the share price of split caps.

The FSA has already criticised some marketing literature for split caps, which include both shares intended to produce growth and shares which are meant to yield an income.

If the City watchdog also decides there is evidence of collusion, the final compensation bill could be enormous and some fund managers could even face criminal prosecutions.

Aberdeen, whose shares have fallen sharply as the crisis unfolded, would not comment on the meeting but it is understood to be very keen on the hardship fund. Aberdeen has already agreed to top up funds of investors in its Progressive Growth unit trust, which was invested heavily in split caps and was marketed as "the one-year-old which lets you sleep at night".

Some of the other fund managers are less enthusiastic about the hardship fund. One said: "It will look like means-tested charity and we don't think it will work."

Aberdeen's board faces mounting criticism in the City and among private investors over the split cap problem and because of the collapse of Aberdeen's technology funds.

It is understood that a number of factions within the company have broken out. Senior staff in its UK unit trust division are becoming very frustrated that their business has been tarnished by the split cap problem.

Some Aberdeen staff are rumoured to have raised the possibility of scrapping the Aberdeen name for the unit trust business, which has £5bn of assets under management.