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Economics and investment: the new liquidity trap

Why are open-ended investment funds allowed to promise daily dealing, when the assets they own can’t be sold this quickly?

Liquidity. It’s a fancy word for investors’ most basic instinct: to pull their money out when they like. It was this desire—and the inability of Woodford Investment Management (WIM) to satisfy it—that shattered the reputation of Neil Woodford, once the top name among Britain’s private investors.

Faced with an avalanche of requests to withdraw funds, on 3rd June WIM was forced to suspend redemptions, notably from its flagship Equity Income fund. This left £3.7bn stranded, with no indication how long the lock-up might last. Woodford had put a lot of investors’…

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