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Wind up of Woodford Equity Income fund “shocking”

15 October 2019

The LF Woodford Equity Income fund is to be wound up the fund’s ACD, Link Fund Solutions, has announced.

Neil Woodford has been removed as manager of the fund and the assets will be sold off by BlackRock and Park Hill; the fund will be re-named the ‘LF Equity Income Fund’.

Adrian Lowcock, head of personal investing at Willis Owen, called the news of the wind up “truly shocking news”.

He said: “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.”

Ryan Hughes, head of active portfolios at investment platform AJ Bell, said: “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, meaning Link has determined it’s in the best interests of investors for the fund to close entirely”.

The fund will begin to wind up in January next year, and investors will get their first return of cash then, when the more liquid assets have been sold.

However, Hughes added that 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 of any proceeds from the sale, so will eat into the money investors get back.

“But it will be a while before investors get back all the money due to them. The liquidity assessment carried out by the fund and divulged to the FCA in April this year showed that a third of the fund was in assets that would take six months to a year, or more, to liquidate. The portfolio has shifted a bit since then, but it is unlikely to be a quick process.”

Darius McDermott, managing director of Chelsea Financial Services, questioned whether the wind up would be in the best interest of investors. He said that Link “appears to have made the decision without much consultation with Woodford Investment Management, and the timing does seem a little odd and out of the blue – especially with Brexit possibly just days away.

“More clarity from Link is required and the regulator needs to be on the ball today, this week, this month, to make sure that investors don’t get hurt any more than they have already.

“At the end of the day, the most important thing is, whether this is a better outcome for investors? Link suggests that investors will get their money back faster than waiting for the fund to reopen, but I’m not convinced that is the case – December had been earmarked for a re-opening of the fund.

The action would makes the fund a forced seller of all stocks, he added, “stocks that the market place and short-sellers are all aware of. It may well mean that less money is returned to investors, so the jury is still out on this one.”

In respect of Woodford’s other funds, Hughes said it seemed “highly unlikely” that Woodford would remain as manager of the Patient Capital investment trust. Hughes said the trust’s board was already looking at potential replacements and the Woodford Income Focus had fallen below £300m, having returned a loss of 20% over the past year.

McDermott added: “It’s all a mess and, frankly, I don’t think this is a good outcome for investors at all.”

Lowcock added: “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.”

AJ Bell reports that Link has waived its fee on the fund from the June suspension and investors won’t be charged direct fees while the fund is being wound up.

Woodford Equity Income Fund Performance

1 year:

Woodford Income Focus        -20%

Woodford Equity Income        -27.7%

Patient Capital                         -54.6%

3 years:

Woodford Equity Income        -35.9%

Patient Capital                         -59.21%

Source: AJ Bell

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