Former Invesco Perpetual man Neil Woodford has had a nightmare week, starting with the gating of his flagship Woodford Equity Income Fund after a torrent of redemptions.
This was swiftly followed by a second Morningstar downgrade and St James’s Place pulling its £3.5bn ($4.4bn, €4bn) segregated mandate from Woodford Investment Management.
In May, the fund had shrunk by £560m, leaving the equity income fund at £3.8bn.
Difficulties selling illiquid positions meant he struggled to meet redemption requests, resulting in the decision on Monday to gate the fund.
A video apology to investors posted on YouTube has done little to allay concerns.
Woodford explained that the strategy is to “reduce the fund’s exposure to illiquids and unquoteds down to zero”.
“The suspension of dealings in the fund gives us the time and space, if you like, to execute that strategy to reduce our expose and redeploy our capital into more liquid stocks in the FTSE350, but primarily in the FTSE100, that fit in with my core strategy but that are more liquid, more conventional, if you like,” Woodford said.
The comments posted below the video on YouTube, however, suggest that investor patience is running out.
Regulatory intervention
The saga prompted the Financial Conduct Authority to wade in, partly to address concerns around the decision to list some of the fund’s assets in Guernsey.
“Suspensions are recognised as a legitimate tool internationally via [International Organisation of Securities Commissions (Iosco)] guidelines.”
The FCA added: “A suspension should seek to protect all the investors, those who remain invested as well as those seeking to redeem, by avoiding forced sales in the assets of the fund, which might be below current values.
“Suspension is not an outcome the FCA seeks to avoid if it is in the best interest of fund investors.”
Channel Islands
The UK financial watchdog also addressed the decision to list some of the fund’s assets on The International Stock Exchange (Tise) in Guernsey.
“The Ucits Directive permits an authorised fund manager, after consultation with and notification to the fund’s depositary, to decide that a non-EEA market is eligible on the basis of various factors such as regular operation, openness, liquidity and has adequate arrangements for the unimpeded transmission of income and capital to investors,” the FCA stated.
“The FCA expects any decision to list a fund’s assets to be in compliance with the relevant rules required by the Ucits Directive to ensure the fund’s assets remain sufficiently liquid and diversified.
“Under EU rules a Ucits fund is allowed up to 10% of the portfolio to be invested in transferable securities which are not dealt in an ‘eligible market’.”
The regulator added that it was not informed, “and would not have expected notice”, of any decision to list the find’s assets prior to their listing.
Guernsey response
A statement from Tise managing director Mark Nicol said: “The LF Woodford Equity Income Fund (WEIF) is a fund regulated by the UK’s FCA.
“WEIF is not listed on Tise,” he added.
“WEIF has holdings in several securities listed on Tise, which is a market operated by The International Stock Exchange Authority.
“On 12 April 2019, dealings were suspended in the Tise-listed securities of three of those issuers – Ombu Group Limited, IH Holdings International Limited and BenevolentAI Limited. The suspension of dealings in those securities was subsequently lifted following discussions with the issuers and their sponsor.
“The International Stock Exchange Authority has noted the suspension of dealings in WEIF and continues to monitor the situation as relevant to the Tise-listed securities held by WEIF.”
