News that Neil Woodford’s £3.7bn ($4.7bn, €4.2bn) equity income fund has been frozen for the foreseeable future has been described as a bad look for the active management industry.
Woodford, one of the UK’s biggest names in asset management, announced on Monday his flagship fund had suspended dealing until further notice following “an increased level of redemptions”.
“After consideration of all relevant circumstances relating to the fund’s assets, we have, in conjunction with Woodford Investment Management Limited (“Woodford”), the appointed investment manager, come to the conclusion it is in the best interests of all investors in the fund to suspend the issue, cancellation, sale, redemption and transfer of shares in the fund.”
Darius McDermott, managing director of Chelsea Financial Services, said that the suspension of what was at one time one of the most popular funds in the UK is symbolically meaningful for the active management industry.
“I’m disappointed that this has had to happen because it is bad for our industry,” McDermott added. “I mean, this is a flagship UK fund having to suspend.”
Suspension in best interests of Woodford investors
However, he said the authorised corporate director’s decision to step in and suspend dealing would be to end investors’ benefit because it means Woodford won’t be forced to sell stocks he doesn’t want to meet liquidity constraints.
He pointed to the premature sale of AJ Bell shares to make his point. Woodford sold out of AJ Bell pre-IPO when shares were around £1.65, but now shares are trading nearer to £4. “You could make a case that value was lost for the unit holders of Woodford Income holders because of the redemption profile,” he said.
However, he felt Woodford would ultimately survive the suspension. “This will be a blow but I don’t think it will be a fatal blow.”
No end date for lifting of suspension
Not having any information on how long the suspension will last will be a frustrating thing for investors, including clients of Hargreaves Lansdown which was reported to have owned 28% or £2.2bn of the fund’s assets in March this year.
Ryan Hughes, head of active portfolios at AJ Bell, said it is reasonable to expect the fund to be frozen for “a reasonable period” given the issue around removing some of the illiquid holdings from the portfolio.
“I think this is a lesson for everybody to make sure that you understand what you invest in. A lot of this is a culmination of people almost discovering they were invested in a fund that had exposure to lots of illiquids rather than a large-cap UK equity fund.”
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