The crisis surrounding the split capital investment trust sector broke in late 2001. It led to a major Financial Services Authority investigation and a House of Commons Treasury Select Committee inquiry that called as witnesses a number of well-known personalities from the investment trust industry.
As interest rates fell in the final years of the last century, private investors were looking for investments that offered high yields or returns. In response, a number of fund management groups created risky, unstable structures built upon bank debt and cross-investment. This was the so-called ‘magic circle’ of fund management firms whose funds invested in each other. The publicity surrounding the crisis was damaging to the reputation of the City.
Andrew Adams is Emeritus Professor of Finance at Heriot-Watt University. He wrote the warning paper “For Whom the Barbell Tolls…” with Robin Angus, was published in April 2001. He also edited the book The Split Capital Investment Trust Crisis which is available in the Library.