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Standard Life and the £100 million investment mistake

Under severe pressure from financial watchdogs and the government, Standard Life has today announced plans to compensate nearly 100,000 savers who had their investments in the company's "safe" cash fund. You would expect such a fund to invest in cash and near cash deposits although it appears that between 2004 and 2007 the fund's exposure to mortgage-backed securities was increased from 3% to a massive 50% without advising customers that the fund's investment strategy had changed.

Initially Standard Life had refused to pay out any compensation after assets fell by 4.9%, much to the annoyance of the 97,000 investors in the fund. As the £100 million compensation scheme is put in place, the company has revealed that more losses could follow from the £2.4 billion pension sterling fund. The fund still has around 40% of its overall assets in "riskier investments" which have the potential to go seriously wrong over the weeks and months ahead.

Over the last few months we have seen a number of "safe" investment funds suffer serious losses due in the main to exposure to the mortgage securities market which has collapsed over the last 12 months. Whether other companies will follow the lead of Standard Life and introduce compensation schemes for investors who lost out remains to be seen, but the barrier has finally been broken and a lead has been taken - even if under severe duress.

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