8 February 2020
Neil Woodford’s flagship UCITS fund, Woodford Equity Income Fund (“WEIF“), was placed into liquidation in October 2019. This followed the suspension of redemptions that was authorised in June 2019 by the fund’s ACD, Link Fund Solutions (“Link“). Readers of this blog will recall that we were pessimistic about the prospects of substantial value recovery for Woodford’s investors. It turns out we were right to be.
Link indicated in late January 2020 that just over 70% of the aggregate value of what remains of WEIF’s portfolio value has been raised from the sale of more liquid investments, mainly consisting of large- and mid- cap equities.
The ambulance chasers circling Woodford’s benighted investors, namely law firms Slater & Gordon and Leigh Day, cry piously and loudly about how Link’s apparent inability to dispose of the remaining portfolio assets is evidence of the extent to which Woodford exceeded the maximum illiquid allowance of 10% permitted by UCITS rules.
One notable characteristic of said law firms, aside from the celerity with which they mobilise after various ambulances, is the conspicuous absence of any legal talent that can reasonably be said to have more than a passing acquaintance with the laws and regulations pertaining to UCITS investment funds or, indeed, the asset management industry in general. Have a look at the “Team” pages on their websites and have a go at finding any lawyers who profess “investment fund” or “financial services” expertise.
The truth behind the apparent illiquidity of the remnants of the WEIF portfolio is that it is a dog. Not just a dog, but a dog that is on fire. No one wants this unlisted rubbish, particularly not at any kind of price. Link would do well to realise what value it can from as expeditious sale as is possible, and put the 2,500 Woodford investors out of their misery.
Neil Woodford in better days
Adding to their continuing misery, one suspects, are the calls they will be receiving from Leigh Day and Slater & Gordon about how they may sue the chief superannuated peddler of Neil Woodford’s bullshit, Hargreaves Lansdown. What the ambulance chasers lack in legal talent, they more than make up for in their ability to isolate and reach for the lowest hanging fruit. Slater & Gordon says that it is examining whether Hargreaves was aware of the problems at WEIF while it continued to push the fund on its now infamous “best buy” list of superstar managers.
Hargreaves removed WEIF off its Wealth 50 buy list only after it suspended investors’ redemption requests in June 2019. Other law firms are said to be looking at how Link Asset Services (the fund’s administrator) monitored the liquidity profile of the portfolio and Woodford’s management of it.
A spokesman for Leigh Day has said: “if there is some wrongdoing the aim would be to try and get investors back to zero. So if they’ve put £10 in and got £6 back we’d look to get the other £4 back.” So WEIF could prove to be an investment fund in which investors’ capital was not at risk. Not at any risk at all, in fact. Readers of this blog could be forgiven for thinking that this breathless claim will come back to haunt Leigh Day, and it is to be hoped that the expectations of the long-suffering Woodford investors are not being hiked on such a rash representation. For it overlooks the fact that capital is rightly at risk in any pooled investment vehicle; that the majority of WEIF’s portfolio assets were not improperly illiquid; that the remaining assets are distressed and accordingly harder to sell; that Hargreaves Lansdown were neither the fund’s manager, nor its ACD nor its administrator, having in fact no functionality or capacity whatsoever with WEIF or its management; and that the only contract that Woodford investors can sue on is the one they have with WEIF, by virtue of being shareholders in it, not any ancillary customer agreement they may have had with Hargreaves Lansdown.
True it is that the ambulance chasers are offering much-needed solace to Neil Woodford’s investors, which is more than the man himself is prepared to do. And we won’t waste any time here on the FCA’s inability to do anything for them. But they would be well advised not to hope too highly for any meaningful kind of recompense.
Matthew Feargrieve is a financial services consultant with more than twenty years’ experience of advising managers of investment funds.