MPs grill Aberdeen Asset Management over split cap crisis

Aberdeen Asset Management launched a vigorous defence of both the marketing and performance of its split capital investment trusts as MPs grilled the firm yesterday over whether it had misled investors.

"There's 100 per cent integrity behind everything we've done,"Martin Gilbert, the chief executive, told a Treasury Select Committee yesterday.

"No, I don't think the managers did screw up," Mr Gilbert said, noting that the poor performance of split capital trusts was directly linked to equities and that stock markets had fallen further than even the most bearish projections.

"The markets fell further than we expected and further than anyone expected," Mr Gilbert said. He added: "This [the current state of affairs] is caused by a prolonged bear market."

The Committee spent two-and-a-half hours yesterday grilling Aberdeen Asset Management, the Association of Investment Trust Companies and the Financial Services Authority over the state of the split capital investment trust market.

The move came just a day after two more funds, BC Income & Growth and Aberdeen's Media & Income, announced they had run out of cash. In addition, BC Asset Management's US Growth & Income Fund said yesterday it had breached its banking covenants.

MPs were particularly concerned that split capital investment trusts, many of which have since proved disastrous investments, had been marketed as "low risk".

"At the time we believed they were low risk," Mr Gilbert insisted, adding: "There were hundreds of articles [on zeros] saying they were a safe investment.... Low risk doesn't mean no risk." Of Aberdeen's 19 split capital funds, about eight are currently in "financial distress", he estimated.

But Daniel Godfrey, the director-general of the Association of Investment TrustCompanies, said he believed that investors were not made fully aware of the changed risk profile of the trusts.

"For a long period of time it was appropriate for them to be marketed as low-risk investments," he said but noted he believed the risk profile of the trusts had changed over time.

"And the industry did not go out of its way to communicate that [change of risk]," Mr Godfrey said. "Investors were not in receipt of that information."

Looking ahead, he said it was critical that investors are given more information about split capital investment trusts and their associated risks.

"We have to make absolutely sure that people understand what they're getting and what the risks are," Mr Godfrey said.

The FSA, which recently launched a full investigation into the split capital trust fiasco, said it was crucial that consumers were made aware of their rights.

"I think the sector has got itself in a mess. I think that's self-evident," said John Tiner, managing director of the FSA. "People are confused about what these investments mean." Nevertheless, he stressed the issue was a "clear priority" at the FSA "and we're pursuing it as fast as we can".

Mr Gilbert conceded yesterday that Aberdeen's advertisements for its Progressive Growth unit trust, marketed as the "one-year-old that lets you sleep at night", had not been "as good as they should have been".

Aberdeen, one of the biggest providers of splits, said last month that it would guarantee investors in the Progressive Growth unit trust would receive at least their initial investment.