By Simon Jessop, Sinead Cruise and Carolyn Cohn
LONDON (Reuters) – Neil Woodford has been ousted from his flagship LF Woodford Equity Income Fund which will be shut down to pay back investors whose money has been trapped since June.
Trading in the now 3 billion pound fund managed by Woodford, one of Britain’s most high-profile money managers, was suspended four months ago after poor performance led to an increase in demand from clients to take their money back.
At the heart of Woodford’s troubles was the scale of his holdings in unlisted or illiquid assets, which have become a focal point for regulators and lawmakers in subsequent weeks – especially as Woodford continued to charge investors management fees.
Bank of England Governor Mark Carney said on Tuesday that the closure should act as a reminder of the structural problems in open-ended investment funds like Woodford’s, which allow investors to take their money out any day they like.
The BoE and the Financial Conduct Authority (FCA) will spell out how investors can pull cash from open-ended funds in December, following a review.
Despite Woodford trying to sell its illiquid holdings ahead of a planned December fund reopening, administrator Link Fund Solutions (LFS) told investors the process had not gone as planned.
As such, Link said the fund risked an extended suspension in December, potentially leading to unequal treatment of investors.
“Whilst progress has been made in relation to repositioning the Fund’s assets, this has unfortunately not been sufficient to allow reasonable certainty as to when the repositioning would be fully achieved and the Fund could be re-opened,” Link said.
Neil Woodford, in a separate statement, firmly rejected the move to shut the fund and oust him as manager.
“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.”
A source close to Woodford told Reuters that Link’s decision was a “complete surprise” and the manager had only learnt of Link’s intention to close the fund late on Monday.
The FCA said it “welcomed the removal of uncertainty” provided by Link’s decision to shut the fund.
It “means investors should receive some of their money back sooner than had the fund remained suspended for a longer period,” the regulator said.
Woodford will cease to be the fund’s investment manager with immediate effect and its assets will be split into two portfolios, LFS said in a statement.
BlackRock Advisors <BLK.N> will sell the fund’s listed assets while PJT Partners will continue with its previously agreed role in selling the fund’s illiquid assets, Link said.
BlackRock will switch the portfolio into money market funds for investors posted online.
A spokeswoman for BlackRock said it would “seek to maximise value for investors, balancing the need for a timely return of capital with the challenges of the illiquidity profile of the portfolio”. PJT declined to comment.
The winding up of the LF Woodford Equity Income Fund – which will be stripped of Woodford’s name – will begin on Jan. 17, 2020, Link said, when investors should receive an initial payment.
Top holdings in the fund according to the last published data in April include housebuilders Taylor Wimpey <TW.L>, Barratt Developments <BDEV.L> and subprime lender Provident Financial Group <PFG.L>.
Darius McDermott, managing director of financial adviser Chelsea Financial Services, said the situation was “a mess” and the fund’s closure would make it “a forced seller of all stocks”.
Britain’s Treasury Committee of lawmakers “will want to examine what lessons can be learned from this saga”, interim chair Catherine McKinnell said.
Oxford-based Woodford made his name at Invesco Perpetual after avoiding the collapse of the tech bubble at the turn of the century as well as banks ahead of the financial crisis.
After more than two decades at Invesco, he set up his own firm in 2014, quickly amassing billions in mostly retail investor assets, much of it from investment platform Hargreaves Lansdown <HRGV.L>, which continued to back the troubled fund right up to its suspension.
At its peak the fund managed more than 10 billion pounds.
Shares in Neil Woodford’s separate listed fund Woodford Patient Capital Trust (WPCT) <WPCT.L> slid to a record low and by 1225 GMT were trading down 7%.
Hundreds of thousands of retail investors had money in the closed fund.
Nooman Haque, a banker whose family invested 10,000 pounds, said Woodford’s decision to continue charging fees during the suspension “did not endear him to investors”.
Link said in the Q&A that fees would still be paid to BlackRock and other service providers, although it would forego its own fee for acting as authorised corporate director.
Mark Robinson, a property investment manager who invested around 5,000 pounds on behalf of his children, said the funds industry needed to learn from the “debacle”.
(Editing by Susan Fenton)