LF Woodford Equity Income fund – was the writing on the wall?
Neil Woodford is a renowned British investment manager who successfully ran the Invesco Perpetual High Income fund for almost 30 years before starting his own investment house. With an impressive track record and 30 year successful career history, breaking free from the Invesco Perpetual High Income fund to start his own investment house in 2014, it’s not surprising that many corporate investors flocked to back Neil Woodfords flagship fund, the LF Woodford Equity Income fund.
The new fund attracted billions in new investment, reaching an all-time high of £10.15 bn by May 2017. Neil Woodford is known for his contrary investment philosophy, looking for small undervalued, often start-up companies that show promise of good returns.
The tide turned quickly …
It wasn’t long before the red flags started to appear. The Financial Times reported in February 2018 that Woodford’s equity income fund was close to breaching the 10% hard limit on unlisted securities for retail Ucits funds. By mid-2018 questions were being asked whether Woodford was engaged in a risky game of liquidity by taking such big positions in small, illiquid, unquoted companies.
In June 2018 Tilney ditched Neil Woodford’s flagship fund from its buy list due to performance and liquidity concerns, echoing sentiment from other platforms that had dropped the UK equities manager.
This move marked the end of the fund for our investors. We had been pulling clients out as we had reviewed them during the previous 6 to 8 months due to poor performance, and upon completing further research we identified that the fund’s assets under management fell almost £2bn from an all-time high of £10.15bn in May 2017 to £8.2bn in December 2017, with a further drop since to £6.8bn, intensifying pressure on Mr Woodford to turn round performance as the asset manager. We had been monitoring both the performance of the fund and the assets under management and decided we would rather take a precautionary stance on behalf of our clients.
I instructed a bulk pull-out from the fund in June 2018.
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The launch of the Neil Woodford fund was helped by major players like Hargreaves Landsdown, Tilney, St James’s Place and even Kent County Council who invested £263 million of employees Pension Fund money.
St James’s Place
The FTSE 100 wealth manager St James’s Place was one of Woodford’s staunchest backers. It pulled £3.7 billion of its clients’ assets out of Invesco in 2014 and parked it with Woodford before he’d even opened his new firm.
Its decision in June this year to sever ties with the money manager by terminating it’s £3.5bn relationship with Neil Woodford days after he had frozen his flagship fund deepened the mood of crisis surrounding Woodford’s firm. St James’s Place decision wipes out a further 40% of Mr Woodford’s assets under management.
The crisis in Woodford’s fund has hit Hargreaves Lansdown hard. The firm, which runs the U.K.’s biggest investment platform, had long been a major supporter of Woodford, and a quarter of its platform customers were exposed to his flagship fund. More than 130,000 individuals invested a total of £1bn in the Equity Income fund via Hargreaves Lansdown, which has faced a backlash for promoting the fund on its much-followed best buy list until the fund was forced to suspend trading in June 2019. Hargreaves, which holds a stake in the fund through its multi-manager funds in addition to listing it in its “Wealth 50 list” up until the suspension, has previously faced criticism for its continued backing of Mr Woodford’s funds.
In an interview with The Times, Peter Hargreaves (who founded Hargreaves Landsdown alongside Stephen Lansdown in 1981) criticised the firm for keeping faith in Woodford for too long. Hargreaves, who stepped back in 2015 and still owns 32% of the business said ‘The clients have been stuffed in this horrible Woodford fund,’ ‘The problem was Hargreaves Lansdown had too much with him.’
The Last Straw
The problems unfolded when the fund struggled to meet redemption requests because it could not sell its illiquid holdings.
Kent County Council attempted to withdraw its investment of £263 million out of Woodford’s fund on 3 June 2019. That proved to be the last straw for the money manager, who gated the fund the same day, blocking the withdrawal.
Platforms ‘acted with conflict of interest’ over Woodford
Shadow chancellor John McDonnell has blamed platforms and the Financial Conduct Authority for the Woodford crisis, and reiterated Labour’s commitment to a review of culture and regulation in financial services.
The UK markets regulator has opened an investigation into the events that led to the fund freeze.
Investors in Limbo
The high-profile fund manager Neil Woodford has since been fired and his flagship Equity Income Fund is to be wound up, with investors money locked in until at least 2020 when the remaining assets will be sold. There was a programme aired by BBC1 on Monday 21 Oct 8.30 pm titled ‘Can you trust the billion pound investors?’ Panorama, for those wishing more in-depth information.
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Speed Financial Solutions are a highly qualified financial services provider looking after clients throughout Spain and the UK. We provide a discreet and comprehensive service to individuals, and our service is tailored to suit your needs taking advantage of tactical opportunities as they arise in respect of your investment planning. We seek innovative solutions for our clients and employ our skills, based on many years of experience, to apply tax legislation to your advantage. Our relationships are built on trust and mutual respect. We are ready to answer your questions, giving you the confidence you want when dealing with a sensitive issue such as discussing your pensions, investments and savings.
Our Principal, Andrea Speed, is a Qualified Discretionary Investment Manager specialising in Investment and Risk among other areas. Andrea is also a Fellow of the Personal Finance Society (PFS) which is the professional body for the financial planning community. The PFS is part of the Chartered Insurance Institute (CII), which is the world’s largest professional body for insurance and financial services in the world.
Fellowship is the highest qualification awarded by the CII and is universally regarded as the premier qualification. It is a major achievement in the financial industry and demonstrates the acquisition of skills and knowledge at the highest of levels.
Along with a Fellowship, Andrea is a CII Chartered Financial Planner specialising in Pensions, Investment, Taxation and Trusts.
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The contents published are not recommendations or decision aids for your investment decisions and they do not constitute any type of advice. We are not tax advisers and independent tax advice should always be sought.
Andrea J Speed FPFS (DM), M.A.
Principal, Fellow and Chartered Financial Planner
Speed Financial Solutions
30 October 2019