Furious investors who claim they were badly advised about the enhanced fund may lose millions
Thousands of Britain’s wealthiest investors, including an Edinburgh-based international entrepreneur of the year, risk losing as much as one-quarter of what they put into a “low-risk” money market fund managed by troubled insurer AIG.
Last month, the bankruptcy of Lehman Brothers and fears about the health of parent insurer AIG triggered a run on the £5.7 billion AIG Premier Bond enhanced money market fund. Investors withdrew an estimated £2 billion from the fund in the week commencing 15 September. This forced the American insurer to take emergency measures to close the fund to withdrawals.
Overall, 5,500 high-net worth individuals have invested in the fund. Their average investment is £1m each. Barclays Wealth is understood to have 1,000 clients who have total of some £1 billion invested.
Almost 100 policyholders have since joined the action group AIG Victims. The investors claim they were mis-sold the product by private banks including Barclays Wealth, Coutts (part of the Royal Bank of Scotland), UBS and Lloyds TSB.
The television presenter Jeremy Clarkson is among those who may lose out. He was advised to transfer a large sum of money into the fund weeks before it ran into difficulties The presenter was given the impression he was putting their money into a fund that would act like and be as safe as a deposit account .
Another “victim” is Steve Leach, founder and chief executive of the Edinburgh-based digital marketing group Bigmouthmedia. Leach, who sold his business to private-equity group Carlyle for £46.5m in 2006, was named international entrepreneur of the year in March.
Leach said: “I consider myself to have been badly advised. This was presented as a very low-risk product. I feel I have been badly let down by Barclays Wealth.”
The investor group claims they were led to believe that they would be able to withdraw their cash at any time. They also complain that private banks failed to warn them that solvency issues at AIG could destabilise the enhanced fund, at a time when smaller boutique wealth managers were urging clients to sell out.
Doug Brodie, director of London-based independent financial adviser Master Adviser, said: “Many of those stuck with this product have been mis-advised. This has always been a potentially dangerous fund.”
Mark Hawthorne, AIG’s assistant general manager has warned that recent trading data suggests policyholders would only recover between 50% and 85% of the sum invested.
At a meeting last week, policyholders were advised by lawyers they may have a case for mis-selling against the private banks that sold them the product. However any legal action will have to wait until after 15 December.
This article was published in The Sunday Times Scotland on 19 October 2008.