Split caps investors offered scant compensation

Thousands of investors who lost money investing in split-capital investment trusts were left disappointed yesterday, after discovering they are to receive less than 50p for every £1 lost, and possibly as little as 40p.

Preliminary estimates last year had suggested that investors may receive as much as 70p in the £1. However, after a surge of applications just before the deadline last July, the compensation fund said that it would be paying out just 40p of losses in its first distribution, with a likely maximum of 9p extra later this year.

The decision affects some 45,000 investments, owned by about 25,000 investors who collectively lost almost £300m by investing in zero dividend preference shares, a low-risk share class of split-cap trusts, between 2000 and 2002.

The compensation fund, Fund Distribution (FDL), was created with about £142m of contributions from fund managers, banks and brokers at the start of last year. The firms agreed to contribute to the fund on a no-blame basis, after a three-year investigation by the Financial Services Authority into allegations of collusion in the sector.

Philippa Gee, the investments director for Torquil Clark, the financial advisers, said: "This is an unfortunate announcement as those investors who suffered at the hands of these trusts are left with a sour taste in their mouths. If a fault has been found then compensation should be at a more appropriate level to rectify the damage caused. The best situation would be to compensate and then we can draw a line under the matter; instead this offer is on the low side of what we expected."

The first payments, to be made over the next few weeks, will be made more than four months later than they had originally been promised. Claimants now have until 15 May to accept or challenge their offers of compensation, after which the company will calculate the second payment.

Last week, the High Court threw out a class action against Brewin Dolphin over its sale of split-cap funds to investors, indicating that disgruntled clients are unlikely to succeed in securing a better deal in the courts.

Robbie Constance, a lawyer at Reynolds Porter Chamberlain, said: "Investors will have to think long and hard before they turn down any offer from FDL. Unlike the pensions review and endowment mortgages, splits investors are finding it hard to prove mis-selling and win compensation."