New fears for split caps as cash runs out at two funds

The troubled split capital investment trust sector was again in the spotlight yesterday when two funds announced they had run out of cash.

BC Income & Growth, a Guernsey-based split cap, said it would appoint a liquidator to break up the trust as it was no longer able to carry on as a going concern. The move came after it announced last Friday that it was insolvent.

Separately, Media & Income – managed by Aberdeen Asset Management, the largest operator in the split capital market – said it was in emergency negotiations with its bankers, Royal Bank of Scotland, after it could no longer pay back loans.

The new evidence of gloom among split caps, so-called because they include both shares for growth and shares for income, comes ahead of an investigation by MPs of the sector today. MPs on the Treasury Select Committee will grill the management of Aberdeen. Also attending will be John Tiner, head of insurance at the Financial Services Authority, and Daniel Godfrey, the director- general of the Association of Investment Trusts.

Managers of BC Income & Growth said they hoped the liquidator would decide to run the trust down over time rather than breaking it up immediately, under the current conditions of falling markets.

Michael Yeo, of BC Asset Management, which runs the trust, said that an immediate break-up "is not something that we would want to happen. It is not in the interest of shareholders or creditors. It would be better to have a managed liquidation over a longer period."

BC Income & Growth has total assets of £26m. It owes £24m to its banks, mainly to Bank of Scotland. It is also meant to pay a return to income shareholders and, on maturity, a sum to those investing for growth. Under liquidation, banks would come before shareholders in reclaiming their assets.

Aberdeen's Media & Income said in a statement: "The company is in discussions with its bankers about its financial position." Aberdeen said the trust was in a "very weak state". RBS will have to decide whether it will foreclose on the trust or extent its loan, which would avoid a forced break-up of the fund.

Media & Income was launched just after the peak of the new technology sector in 2000. Its liabilities now are £77m, outstripping its £72.8m gross assets.