Woodford funds suffer swift and ignominious collapse

Two funds led by Neil Woodford are to be wound up, it was announced yesterday, leaving the reputation and empire of Britain’s most famous fund manager crushed.

Following the news on Tuesday that the star stockpicker had been sacked from his flagship fund by its supervisor Link Fund Solutions, Woodford announced he had made the “highly painful decision” to resign from the other two funds he managed. He handed in his notice at Woodford Patient Capital Trust and Woodford Income Focus Fund.

Link, which is acting as administrator to the £258m Woodford Income Focus Fund, said that, given Woodford’s resignation, it was forced to suspend the fund from trading to avoid a mass exodus of investment.

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“We expect that the redemptions in the Fund will reach a level whereby it may no longer be able to continue to meet redemption requests without prejudicing the interests of both remaining and redeeming investors,” Link said in a letter to investors.

The Woodford Income Focus Fund, however, pales in comparison to Woodford’s flagship Equity Income Fund, which, at its peak, held more that £10bn of money from investors - ranging from large financial institutions to individuals taking a chance - but is now worth £3.1bn.

In June, Link Fund Solutions decided to freeze the fund, locking in client’s money, following an exodus of investors, before announcing the fund was to be closed for good on Tuesday.

“I personally deeply regret the impact events have had on individuals who placed their faith in Woodford Investment Management and invested in our funds,” Woodford said in a statement.

The Financial Times explains: “The flagship Equity Income Fund was set up to be, in the industry parlance, a ‘widows and orphan’ product - designed to provide cautious investors with high dividend payments and low-risk returns. In reality, the portfolio was piled high with speculative bets on unlisted companies, which proved hard to sell when investors bolted.”

Woodford disagreed with the move to close the fund, saying: “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.”

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While Woodford’s reputation as a stockpicker has been decimated, he still “earned many millions in fees during the business’s four years of trading and had continued to draw fees from the Equity Income fund while savers’ money was trapped”, reports The Guardian.

“Investors all over are jumpy and nervous,” said Peter Brunt, an executive at fund data company Morningstar. “Active managers have taken a blow — and liquidity is certainly part of that.”

Martyn James, of financial complaints service Resolver, told The Telegraph: “Parliament and regulators need to look at the absence of effective customer voice in the governance of individual funds, the complicity and opaqueness of the role of investment platforms... and how to manage and value unquoted and illiquid assets in open-ended funds. If nothing is done, we will have repeats of the Woodford incident.”

Catherine McKinnell MP, interim chair of the UK’s Treasury select committee, added: “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.”