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Administrator Fires Woodford, Fund To Be Wound Up

Tom Burroughes

16 October 2019

Administrators have shut Neil Woodford’s stricken LF Woodford Equity Income Fund, which has been closed to investor redemptions since June. Woodford has been sacked as its manager, ending a saga that tarnished his stellar reputation.

The fund, which had suffered weak performance, had been hit by a major investor pull-out earlier this year, prompting Woodford to shut doors to further redemptions. Administrators Link Fund Solutions, who had taken over control of the fund, said that although some progress had been made in repositioning its portfolio, it was insufficient.

“After careful consideration, the decision has now been taken not to re-open the fund and instead to wind it up as soon as practicable. This is with a view to returning cash to investors at the earliest opportunity,” the firm said in a statement yesterday. “Following our decision to wind up the fund, Woodford will, with immediate effect, cease to be the investment manager of the fund.”

The administrator said that it expects to wind up the fund from 17 January next year; it was impossible to start this process earlier because investors must be given at least three months’ advance notice under EU regulations.

“This was Link’s decision and one I cannot accept, nor believe is in the long-term interests of LF Woodford Equity Income fund investors," Woodford said in a statement.

The demise of the fund reminds investors and advisors of how holding illiquid, unlisted assets, particularly during volatile markets, can come unstuck. (See a video involving a discussion on this subject.) Woodford 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, also withdrew mandates from Woodford funds. 

The issue also caused controversy about the financial advisor firm, , which had 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.  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.

“Investing has become increasingly complicated and opaque, with people putting money in investment funds without really knowing what these vehicles are invested in. The latest twist in the Woodford saga is a wake-up call for investors to do a bit more homework and get a better understanding of what they’re investing in,” Iqbal V Gandham, managing director UK at eToro, said.

“We are all consumers and know when a brand is doing well, so the company behind it is probably successful too. While there are no guarantees around stock-picking, understanding these basics will help people make more informed decisions about where they invest their money,” Gandham. 

Adrian Lowcock, head of personal investing at Willis Owen, was scathing about the outcome. 

“Although there were rumours, this is truly shocking news. We have seen the complete demise of the most famous fund manager the UK has seen for years. Investors knew the scenario was bad but the indication from Woodford thus far had been that the fund would reopen,” Lowcock said. 

“This collapse is on a par with the implosion of New Star at the height of the financial crisis, and it will shake the funds industry to its core,” he said, referring to the demise of UK-listed asset management house New Star. “Woodford will be removed as fund manager and the holdings in the fund will be sold. This means investors may have to wait until next year to firstly find out the value of their investment and then to get their money back. Sadly many people will be looking at significant losses.”

Link Fund Solutions said that it has been in talks with the Financial Conduct Authority about the changes it is making, and has also involved due diligence checks from the fund’s depositary, Northern Trust Global Services SE (UK Branch). LFS said that it will continue to be the Authorised Corporate Director of the fund. LFS has split the fund’s assets into two parts: one comprising listed assets, to be transferred to BlackRock Advisors (UK), and a second organisation, PJT Partners (UK) Limited, to handle unlisted and illiquid assets.

LFS said the fund’s name will change as soon as regulatory clearance is given to LF Equity Income Fund, erasing the Woodford name.

“In the period leading up to the commencement of the winding up of the fund, there will be no change to the amount of the periodic charge paid by the Fund to the ACD. Out of the periodic charge we will pay BlackRock’s fees for its services, as well as the fees of the fund’s Depositary, administrator, custodian and auditor. LFS will not take its fee for acting as ACD from the point of suspension and, therefore, if there is a surplus after paying all other fees, LFS will return this to the fund. 

Brokerage and legal costs, including the costs of Park Hill, associated with selling the assets in Portfolio B will continue to be borne by the fund. These costs will be greater during this period than they were typically in previous periods due to the requirement to sell all of the fund’s assets, the administrator added. 

Reputational damage
“7IM were on the record in October 2017 pointing out that Woodford was playing a dangerous game with his funds’ liquidity. We were quoted at the time as saying problems may arise if his redemptions go from a trickle to a steady flow, and if the most liquid, high-yielding stocks are sold first," Peter Sleep, Senior Investment Manager at Seven Investment Management, said.

“The first investors out will be fine, but those investors that remain could end up with a different fund to the one they thought they had. They may start out with a high-income fund and could finish up with an illiquid, venture capital fund," Sleep continued. “We were right in some respects, but unfortunately we did not anticipate the financial losses and stress that investors would suffer before they got what remained of their money back. Mr Market can be difficult for many investors but the mismanagement of the Woodford funds compounded this greatly.

“The entire episode reflects poorly on the financial sector, which already enjoys a low-level of trust from the public at large. In the future we hope all those working in the financial sector learn from this and work to prevent this happening again," he added.