Haig Bathgate talks to Jeff Salway of The Scotsman as investors are urged not to panic amid fears that more firms could move to freeze people out of their most popular funds.
A flurry of so-called"soft closures" in recent weeks has triggered concerns over the choice available to investors in some sectors and possible liquidity problems in bond funds in particular.
Haig said such soft closures are generally positive for existing investors in the affected funds.
"It should protect the existing unit holders to a degree and stops speculative flows into hot areas increasing," he said.
"It is not a holy grail, however, and it makes sense to ensure that you fully understand the liquidity of the underlying holdings in any strategy."
Investors in commercial property funds were caught out for similar reasons when the market plunged dramatically in 2008. Edinburgh-based providers including Standard Life, Aegon and Scottish Widows were among those who blocked withdrawals from their property funds to prevent outflows that threatened to create a liquidity crisis.
Emerging market funds have attracted massive inflows in recent years, but any downturn in what is a volatile market could spark rapid outflows. Even before First State soft-closed its Asia Pacific Leaders fund last year it had taken the same step on five of its global emerging markets and Asia Pacific funds. It said the funds had reached a point where their size could affect their performance and limit their ability to invest in smaller companies.
The Aberdeen emerging markets fund is among the largest 20 domiciled in the UK, but it's far from the biggest. That distinction belongs to the £29.5bn Templeton Global Bond fund, one of six bond funds among the top 20 biggest unit trusts/Oeics.
That may be the sector to watch if you're wondering where the next soft closures are coming from, as fears grow of a potential bond bubble.
"Equity-focused funds are unlikely to be hit as hard as fixed income funds or funds that have significant emerging market currency exposure in more esoteric areas," said Haig."We are particularly concerned about fixed income funds where underlying liquidity has reduced very significantly."
Investors should check the liquidity of a fund's underlying portfolio and consider what it would be expected to trade like in a negative as well as a positive market, Haig advised.
"Also, remember that while soft closure means no new investors are allowed, it does not mean that existing investors can't add to the strategy," he said."A number of the funds that have soft closed will continue to increase in size and they are already very large."
As the latest developments suggest, the size of a fund is increasingly worth looking at when you're weighing up a new home for your investment cash.
The assets under management figure is one of the most important things to check before investing in a fund, according to Haig. Where possible that also means finding out if the fund manager is rewarded on performance or attracting new money.
The extent to which size can become a concern depends on the sector too – the smaller the universe of potentially desirable fund holdings, the greater the possibility that a large influx of cash would force the manager to invest in companies he would otherwise overlook."Ultimately everyone is driven by incentives but having the largest fund is unlikely to yield the best return," said Haig."We seen in many cases a link between fund size growth and a fall off in performance and this is even more prevalent now that underlying market liquidity is significantly less than it has been historically."
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