The Financial Services Authority has visited the offices of Aberdeen Asset Managers, Britain's largest manager of split capital investment trusts, as part of its investigation into possible mis-selling and collusion in the sector.
Aberdeen, which manages 17 split cap funds and is part of the so-called magic circle of investment trusts which hold relatively large stakes in each other, saw its shares tumble as much as 14 per cent before recovering some lost ground to close down 8 per cent at 297.5p.
Gary Marshall, sales and marketing director of Aberdeen, said he was "absolutely confident" that the FSA would not find evidence that the company has mis-sold split caps. He stressed that the FSA visit was a "fact-finding mission" and that the regulator would see a number of other companies in the sector.
The magic circle's cross-holdings in each other have been criticised for increasing the risk investors face. If one split cap goes under, there is a high chance of a domino effect.
Split caps came into the spotlight last year because negative stock market returns made some trusts, which are generally already highly geared, breach their banking covenants and put certain pay-outs to investors in doubt.
Split caps are investment vehicles with several classes of shares. Income shares promise high levels of income, while zero dividend preference shares promise to pay a pre-set level of capital if certain growth rates are achieved.
One of the FSA's concerns is that zeros have been sold to thousands of private investors as low-risk and tax efficient investments. But if a split cap breaches its banking covenants it can suspend payments on zeros.
Aberdeen increased the risk rating last September on one of its unit trusts which invests solely in zeros. The asset manager had rated the fund as low risk but, because of the volatility of the stock market, had to increase the rating to medium risk.
Aberdeen says it supports more disclosure by split caps of their holdings.Reuse content