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Neil Woodford’s £3.5bn equity income fund to be wound up Neil Woodford’s £3.5bn equity income fund to be wound up
(about 4 hours later)
Neil Woodford has been removed as investment manager of his £3.5bn flagship fund, which is to be wound up and the cash returned to investors, more than four months after it was suspended. Investment manager Neil Woodford has been fired from his namesake £3.1bn investment fund, which will be wound up in an effort to return cash to investors more than four months after its shock suspension.
The former star fund manager had planned to reopen the Woodford Equity Income Fund, but the administrator, Link Fund Solutions (LFS), said on Tuesday it was in the best interests of investors for it to be wound up. The move is a major embarrassment to the former star stock-picker, once referred to as the “Oracle of Oxford”, and is likely to end his three-decade career as a high-profile money manager.
Woodford, who has been scrambling to rescue the fund, said he opposed the move. “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.” The fund’s administrators, Link Fund Solutions (LFS), said the decision to shut down the Woodford Equity Income Fund was in the best interest of investors. They will start receiving payouts after the wind-up begins in January 2020.
In a letter to investors, LFS said their cash would be returned to them “at the earliest opportunity” although it was unable to say how much of their original investment would be salvaged. It will begin winding up the fund on 17 January, after giving investors three months’ notice as required. Woodford ceases to be the investment manager of the fund with immediate effect and his name will be removed from the fund. It is understood that Woodford was first told about Link’s plans on Monday. He opposed the move, which removed him as investment manager with immediate effect, and in a statement issued on Tuesday he insisted it was a bad decision.
The fund was suspended on 3 June after investors clamoured to withdraw their money after a series of bad stock market bets. Woodford said: “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 continued to charge the fund fees of about £65,000 a day, angering locked-out investors. He argued the fees were needed to pay wages and other costs while he shifted investments away from smaller, illiquid assets into larger publicly quoted companies. Many of his investments have performed badly, including the estate agent Purplebricks, finance firm Burford and doorstep lender Provident Financial. In a letter to investors, LFS said cash would be returned to investors “at the earliest opportunity” – although it was unable to say how much of their original investment would be salvaged.
LFS has waived its fee on the fund from the June suspension. BlackRock advisers and PJT Partners have been appointed to assist with the winding-up of the fund, and will charge fees. Its size has crashed to about a third of its peak of more than £10bn due to withdrawals and poor performance. The amount that can be returned will depend on how much fund manager BlackRock and investment banking firm PJT Partners, which have been appointed to wind-up the fund, can raise from selling the remaining assets, minus the fees charged for their work. Their fees have not been disclosed.
Catherine McKinnell, the interim chair of the Treasury committee, said: “This appears to be the beginning of the end of a sorry state of affairs … There is still some time to go in this uncomfortable episode, which has raised important questions about the functioning of the funds industry. I’m sure the committee will want to examine what lessons can be learned from this saga.” Neil Woodford was once the UK’s biggest star fund manager, personally managing a £25bn mountain of money on behalf of pension funds and other investors at Invesco Perpetual. When he decided to quit Invesco and go it alone in 2013 it was a huge shock for the fund management industry. Invesco shares slumped by 7% on the day he announced his departure.
At Invesco Woodford held control of huge stakes in some of the UK’s biggest firms, and his opinions mattered. His criticism of AstraZeneca chief executive David Brennan in the 2012 shareholder spring was widely regarded to have cost him his job, and his critique of BAE’s attempted £28bn merger with Airbus is acknowledged as one of the reasons the deal collapsed.
Woodford, who was widely referred to in the media as an investment “hero” and fund management “star”, had done exceedingly well over his quarter century there. A £1,000 investment placed when he started at the firm in 1988 would have risen to £23,000 by the time he left.
Woodford accidentally fell into fund management and hadn’t heard of the term until he rocked up in the City in the 1980s sleeping on his brother’s floor while looking for a job. He got his first break in insurance, before drifting into fund management. He had left school wanting to fly fighter jets but couldn’t pass the RAF’s aptitude test, and instead read economics and agricultural economics at the University of Exeter.
Feeling he had outgrown Invesco Perpetual, he set up his own firm Woodford Investment Management in 2014, on an industrial estate near Oxford. Within two weeks of launching, he had raised £1.6bn, a UK record, and it quickly grew to £16bn. In its first full year his flagship fund returned 16% and Woodford, a devotee of veteran US investor Warren Buffett, was dubbed the “Oracle of Oxford”.
Asked if he ever doubted his judgment, Woodford once said: “Daily. You must never, as a fund manager, stick your head in the sand saying ‘everybody go away, I’m right, I’m right, I’m right’. You’ve always got to expose yourself to criticism and the analysis that you may be wrong.”
Woodford went on to say that the secret of successful fund management was a balance of arrogance and humility. “You have to have a sufficiently strong arrogant gene to back your judgment, back your conviction. If you didn’t, you would end up with a portfolio that looks very much like the index. But, equally, you must have the humility to accept that you will get things wrong.”
Rupert Neate
The stock-picker has not disclosed how much of his own personal wealth was tied up in the equity income fund, which will no longer bear his name.
Link confirmed Woodford will not receive any severance pay.
The shutdown comes more than four months after Woodford was forced to block investors from withdrawing their money from the equity income fund in June, following a string of bad bets that prompted a surge in redemptions that he could not fulfil.
The fund, which was once worth more than £10bn is now worth only around £3bn, due to withdrawals and a raft of poorly performing investments, including online estate agent Purplebricks, finance firm Burford and doorstep lender Provident Financial.
According to broker AJ Bell the equity income fund has lost 28% over the past year, and 36% over the past three years.
The fund manager has been criticised since the fund was gated for failing to suspend his firms management fees, which are worth around £65,000 per day. He argued the fees were needed to pay wages and other costs while he shifted investments away from smaller, illiquid assets into larger publicly quoted companies.
Kent County Council – which is believed to have prompted the fund’s suspension by asking to pull investments worth £263m in May – welcomed the decision.
“We believe a managed rundown of the portfolio is in the best interest of all the fund’s investors,” Charlie Simkins, the chairman of the KCC’s pension fund committee, said. He added that the delay in recouping Kent’s investments would not affect its ability to pay members.
Ryan Hughes, the head of active portfolios at the investment platform AJ Bell, said: “Investors will still be incurring high costs for the winding-up of the fund, particularly selling off the illiquid assets. These costs will be taken out of any proceeds from the sale, so will eat into the money investors get back.”Ryan Hughes, the head of active portfolios at the investment platform AJ Bell, said: “Investors will still be incurring high costs for the winding-up of the fund, particularly selling off the illiquid assets. These costs will be taken out of any proceeds from the sale, so will eat into the money investors get back.”
Investors will get their first return of cash by the end of January, when the more liquid assets have been sold. Any less liquid assets will be sold over time to limit losses, rather than on a “fire sale” basis. Hughes said an assessment carried out earlier this year showed that a third of the fund was tied up in assets that could take six months to a year or more to liquidate. “The portfolio has shifted a bit since then, but it [is] unlikely to be a quick process,” he added.
The liquidity assessment carried out by the fund showed that a third of the fund was in assets that would take six months to a year, or more, to liquidate. While the portfolio has shifted a bit since then, it is unlikely to be a quick process, Hughes said. Woodford may face further embarrassment in the coming weeks if the board of his publicly listed fund, Woodford Patient Capital Trust (WPCT), also decides to sacks him as its investment manager.
In the letter to investors, LFS said: “While progress has been made in relation to repositioning the fund’s portfolio, this has unfortunately not been sufficient to allow reasonable certainty as to when the repositioning would be fully achieved and the fund could be reopened. “As previously announced, the board has been undertaking a review of the company’s management arrangements and will make a further announcement in due course,” the Woodford Patient Capital Trust said on Tuesday.
“We have therefore concluded that it is now in the best interests of all investors for the fund to be wound up by way of an orderly realisation of the fund’s assets. This orderly realisation will allow the return of money through interim payments to investors more quickly than if the fund had remained suspended for a longer period of time.” Catherine McKinnell, the interim chair of the Treasury committee, said: “This appears to be the beginning of the end of a sorry state of affairs … There is still some time to go in this uncomfortable episode, which has raised important questions about the functioning of the funds industry. I’m sure the committee will want to examine what lessons can be learned from this saga.”
Link will continue to publish the net asset value per share on a daily basis on its website. This will allow investors to see how much their investment is worth.
Neil WoodfordNeil Woodford
Financial sectorFinancial sector
Investment fundsInvestment funds
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