After months of speculation and liquidity issues, the Woodford saga has taken an unexpected turn say investment experts.
Neil Woodford has been fired, and its flagship fund, the Equity Income Fund, is going to be shut down.
The Financial Conduct Authority (FCA) said that Link Fund Solutions, the authorised corporate director of the fund, will not seek to re-open it and that, subject to regulatory approval, the winding up process will begin in mid-January 2020.
“Woodford Investment Management will no longer be the investment manager of the fund, with immediate effect and the fund will also be renamed as a result,” the regulator added.
Problems started when the fund struggled to meet redemption request because it could not sell its illiquid holdings.
The fund’s assets are going to be handed to Blackrock and Park Hill to be sold.
But Woodford did not agree with 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,” he said.
Unforeseen move
“Although there were rumours this is truly shocking news,” said Adrian Lowcock, head of personal investing at Willis Owen.
“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.
“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.
“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.”
Wake-up call
Ryan Highes, head of active portfolios at AJ Bell, said: “For the Woodford debacle to have any positive outcome it must now serve as a catalyst for the FCA to speed up its review of illiquid assets held in Ucits funds.
“Woodford has not managed to move out of his unlisted assets and into more liquid listed equities quickly enough to re-open the fund in December [2019], meaning Link has determined it’s in the best interests of investors for the fund to close entirely.
“Woodford’s name is also being wiped off the fund, as the assets will be handed to BlackRock and Park Hill to sell off, meaning Neil Woodford will no longer be the fund manager – instead it will be re-named the ‘LF Equity Income Fund’.
“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 any proceeds from the sale, so will eat into the money investors get back.”
Investors’ limbo
The Woodford fund will begin the winding up process in January 2020, which is when investors will see the first return of cash.
But it is still not clear when or if they will be able to get the whole sum back, as this might take a while.
Additionally, Woodford’s other funds were not mentioned, such as the Woodford Income Focus, which, Lowcock said, “has now fallen below £300m ($380m, €345m), having returned a loss of 20% over the past year”.
Lee Wild, head of equity strategy at Interactive Investor, said: “It is investors in the fund who are feeling the real pain from the side-lines.
“Woodford may have been sent off the pitch, but investors are still stuck in the stands. Uncertainty remains as to how long they will have to wait for what’s left of the fund to be returned to them – they will have to watch this sorry saga play on for some time yet.”
