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Exeter failure leaves investors better off then with rescue fund

The collapse of Exeter Fund Managers means that investors will be paid out by the Financial Services Compensation Scheme.

The FSCS’s reassurance that investors will be compensated for any shortfall means that Exeter Fund Managers’ split-cap clients will be better off than investors with the 18 companies that signed up to the 194m Christmas Eve deal with the FSA who will only get a proportion of their shortfalls.

It also means that investment product providers could for the first time be paying for a collapsed provider through the FSCS, which recently forecast that its levy for fund firms would rise massively from 100,000 to 27m.

Exeter Fund Managers is a non-trading subsidiary of Iimia Investment Group, which sold its management contracts to New Star for 9m.

The money raised was ringfenced by the FSA to compensate investors in the Exeter zero preference fund and the Exe-ter open-ended investment company following the split-cap debacle. But Exeter Fund Management was unable to sign up to the FSA’s compensation scheme in December after admitting it did not have enough money to pay for probable claims.

One split-capital analyst says: “From Iimia’s point of view, this is the most reasonable outcome that can be achieved. It ensures that Exeter unitholders can take further action but without Iimia shareholders being hurt by something that happened before Iimia took over Exeter.”

But Hargreaves Lansdown head of research Mark Dampier thinks it is unfair that the other fund firms will have to pay for Exeter’s problems.

He says: “If Allders go bust, do Next and Marks & Spencers have to fork out for their mistakes? Companies seem to be using the compensation scheme as a means of dumping liabilities. It is not fair. The present system will be good for Exeter investors who invested less than 48,000, because they are likely to get more compensation than if they had invested in one of the other ailing splits. You have to question if it is the right system

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