The British financial services regulator is keeping a close eye on high-profile investor Neil Woodford after he froze withdrawals from his flagship fund.
Mr. Woodford's move to halt redemptions this week was essential to prevent a messy situation in markets, as investors fled the fund while the money manager tried to exit hard-to-sell investments, Andrew Bailey, chief executive officer of the Financial Conduct Authority, said in an interview.
Now Mr. Woodford has time and flexibility to fix the problems in "as orderly a way as possible," Mr. Bailey said. "That's what the FCA will be obviously closely watching and involved in where we think is necessary," he said.
"I know investors say, 'that has restricted my options,' but I would counter that by saying the alternative would have been much more disorderly," Mr. Bailey said.
Freezing shares in the fund until further notice drew criticism from a U.K. pension fund that wants to pull out its money. Kent County Council's investment was valued at 263 million pounds ($334 million) at the end of April, according to a statement from the council.
The troubles with the LF Woodford Equity Income Fund come as regulators debate restrictions on funds that hold stakes in securities that are rarely traded or are hard to sell. Mr. Woodford's mutual fund had unusually large stakes in unlisted biotechnology companies.
Funds should be allowed to make such investments but regulators and the industry must do more to ensure that investors have an easy way of exiting funds when they want without spreading panic in markets, Mr. Bailey said.
"Ten years ago we were dealing with the problem of banks that were too big to fail," Mr. Bailey said. "Of course we don't want funds that are too big to fail."