Over 8 in 10 (86%) investors hit by the suspension of the Woodford Equity Income fund in June 2019 suffered a 'negative impact' to their finances, according to the Association of Investment Companies.

The AIC said 53% of investors in the fund also reported damage to their general wellbeing.

Trust in the investment industry remains dented more than two years after the suspension.

Of respondents who were affected by the suspension, over three quarters (77%) reported a negative impact on their trust in the investment industry.

A total of 81% of private investors said they believed the FCA should strengthen protections for investors where illiquid assets are held in open-ended funds.

The findings are relevant given the investment industry’s plans to launch Long-Term Asset Funds (LTAFs), a new open-ended fund structure that would be allowed to have far greater exposure to hard-to-sell illiquid assets than was permitted for the Woodford Equity Income fund.

The Woodford Equity Income fund operated under UCITS rules which permit a maximum of 10% of a fund’s assets to be invested in less liquid assets such as unlisted securities.

The FCA’s consultation paper CP21/12 on the proposed LTAFs specified that the regulator would expect more than 50% of an LTAF’s assets to be invested in unlisted securities and other long-term assets.

The research by the AIC also looked at why investors chose to invest in the Woodford Equity Income Fund.

The reputation of Woodford himself was the most influential factor, cited by 82% of investors in Woodford’s funds. This was followed by the inclusion of the fund on Hargreaves Lansdown’s buy-list (56%) and coverage in the finance sections of newspapers (31%), with the appeal of the fund’s investment objective or strategy in fourth place (25%).

Among investors in Woodford’s funds, over 8 in 10 (83%) were not fully aware of their exposure to small, unlisted companies, while 1 in 5 (20%) were not aware at all. And among all private investors, over a third (34%) were unaware of the possibility that an investment fund might suspend trading.

The most common lesson learned by private investors from the Woodford collapse (including those unaffected as well as those affected) was to be less trusting of a fund manager’s reputation, with 6 in 10 (59%) of respondents saying this.

Research in Finance conduced a survey of 205 private investors on behalf of the AIC. Of these, 159 had invested in a fund run by Woodford Investment Management, and 100 were impacted by the suspension of the Woodford Equity Income fund. The fieldwork was conducted between 16 June and 9 July.