Shortly aftewards, bond giant M&G announced it was ‘limiting inflows’ to its £6.1bn M&G Corporate Bond and £5.7bn M&G Strategic Corporate Bond funds.

There are 10 other funds in the IMA Sterling Corporate Bond sector that have in excess of £1bn in assets under management, including the popular £3.3bn Fidelity Moneybuilder Income managed by Ian Spreadbury.

In September 2012, Investment Adviser, as well as suggesting smaller alternatives to the large corporate bond funds, also highlighted those larger funds at risk that could limit inflows in the future – Invesco Perpetual and Fidelity were among those providers mentioned.

John Forbes, a partner at PricewaterhouseCoopers, explains: “Providing investors with a theoretically liquid investment in a fundamentally illiquid underlying asset class carries risk. In the face of significant requests for redemptions from investors as the market declined, only a minority of UK fund managers were able to maintain liquidity throughout.

“Striking the right balance between protecting the interests of investors wishing to leave and those wishing to stay, proved difficult. What’s more, managers struggled to demonstrate impartiality because they had a strong vested interest in retaining assets under management in order to maintain fees.”

Corporate bond funds are not the only concern. Equity managers such as Neil Woodford and Mark Mobius, who both manage billions across their fund ranges, have also come under pressure from the industry.

A recent edition of Investment Adviser tackled the capacity concerns about Mr Woodford’s funds as analysts claimed that the manager has had to alter his investment style in order to move the fund’s positioning when necessary.

Bond fund managers have been doing similar things. Michael Petersen, investment proposition manager at Legal and General Investment Management, says: “Many bond fund managers have indicated that they are increasing their exposure to more liquid asset classes such as cash, gilts and derivatives, in order to manage the liquidity of their funds.”

But Stephen Snowden, fixed income investment manager at Kames Capital, says that this simply is not cost effective.

“Short-dated gilts of up to five years maturity are probably yielding less than the annual management charge on most corporate bond funds. A cash and gilt reserve is a negative income facility, dragging down the fund yield and the realised income for the end investor.”

He adds that a typical corporate bond transaction in today’s market is considered to be between £3m-£5m – he says trading within this range is cost effective. “However, trading in bigger size is not,” he says. “Trying to exit a £25m trade usually comes with multiple day delays and/or material price concessions. Trades of larger size become exponentially more difficult and costly. A fund of, say, £400m in size can easily buy or sell a typical holding size of 1 per cent within current market size.”

Jenny Lowe is features editor at Investment Adviser