Fund Management

CFA Frowns On Woodford's Frozen Fund Saga

Tom Burroughes, Group Editor, London , 14 June 2019

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The body says the gating of the Woodford Equity Income Fund highlights issues around "professionalism and ethics in fund management".

CFA UK, the accreditation and training body for financial services, argues that the recent saga over the freezing of the Woodford Equity Income Fund “raises questions around professionalism and ethics in fund management”.

More than a week ago Neil Woodford, one of the UK’s most prominent asset managers, temporarily froze dealing in the fund after a large pension scheme in Kent withdrew money in frustration over poor performance. St James’s Place, the wealth management group, has also withdrawn mandates from Woodford funds, as reported here. The gating of the fund has even prompted commentary by the Financial Conduct Authority, the UK regulator.

The saga underscores the importance of liquidity and for investors to understand the fine print around when or whether investment managers can halt trading.

“The gating of the Woodford fund is unusual as it has not occurred at a time of market stress, but it should still cause every investment management leader to ask themselves some key questions: Do we have the right governance processes and controls in place? Do we have the right culture of challenge in place to allow these processes to work? Are our actions aligned with our purpose and is our purpose client-centric? If they can’t answer these questions positively, then they should refresh their culture, processes and controls to set things right,” Will Goodhart, chief executive at CFA UK, said. 

The organisation said that it has highlighted benefits to investors of being able to access illiquid assets via open-ended investment funds. But in a statement issued this week, the CFA added: “While such funds help to maintain the democratic nature of finance by allowing retail investors access to opportunities that would otherwise only be available to professional investors, they also expose those investors to risks that are not always well understood.”

“In these cases, there should be clear and prominent disclosures about liquidity risk in fund literature. In addition, fund managers should carefully model, monitor and manage liquidity risk, fulfilling their responsibilities to act with reasonable care and to exercise prudent judgement in looking after their clients’ money,” it continued.  

As reported earlier, the Woodford fund woes have caused controversy about the financial advisor firm, Hargreaves Lansdown, which has been a fan of the fund. Mark Dampier, head of research at Hargreaves Lansdown, has recently sold a large equity stake in Hargreaves Lansdown. Dampier, 62, has in the past called Neil Woodford “one of the UK’s best fund managers” and the men have known each other for more than 25 years (Financial Times, 7 June, other media). Dampier and his wife Annette reportedly sold £5.6 million ($7.1 million) of shares in the business in May, avoiding a subsequent share slide that had hit Hargreaves Lansdown amid criticism of its stance over Woodford (source: FT, other).

A spokesperson for Hargreaves Lansdown told this publication that Dampier remains fully committed to that firm and has no plans to retire.

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