Thursday 28 May 2020 2:44 pm

Neil Woodford one year on: How the star stock picker fell from grace

Former star stock picker Woodford suffered a very public fall from grace last year after his flagship Equity Income fund was suspended following a spike in investor redemptions. 

One year on, we look at what caused Woodford’s demise, where he is now and what it means for the investment industry going forward.

Read more: Neil Woodford’s ‘sorry saga’ finally ends as flagship fund set to be wound up

Who is Neil Woodford?

Neil Woodford began his career with the Reed Pension Fund and TSB before becoming a fund manager with Eagle Star.

He made a name for himself at Invesco and at his peak managed funds with more than £15bn of investors’ money. He ran the Invesco Perpetual Income and Invesco Perpetual High Income funds.

In 2014, Woodford left Invesco to set up Woodford Investment Management and a year later set up the listed investment trust, Woodford Patient Capital Trust. In 2017, he set up the ill-fated second Equity Income Fund.

Why was Woodford Equity Income suspended?

After two years of poor performance, Woodford Equity Income fund came under scrutiny after the Sunday Times carried out an investigation which found the fund held less than 20 per cent of assets in FTSE 100 companies, compared to 50 per cent when it was first created.

In June, the Woodford Equity Income fund was suspended after becoming overwhelmed by investor withdrawal requests, leading to the investment industry’s biggest crisis in years. 

Wealth manager St James’s Place ended its contract with Woodford to manage three of its funds.

His empire imploded when Kent County Council withdrew a £263m investment mandate from the firm. He then prevented investors from selling holdings in his £3.7bn fund before he was sacked. 

Read more: Neil Woodford investors to share £141.7m payout

What happened to the fund?

The suspension eventually led to Woodford shuttering the business in October.

Link Fund Solutions, which has been responsible for overseeing the suspension and liquidation of the fund, announced in October it would sack Woodford, wind up the fund and return cash to the investors. 

The fund manager then announced he would resign from his role at the remaining investment funds, Woodford Patient Capital Trust and Woodford Income Focus fund and close his investment company.

What happened to Woodford’s other funds?

Asset manager Schroders took charge of Woodford Patient Capital in October after Woodford’s departure. The fund, now called Schroder UK Public Private Trust, sees Schroders take  a management fee of one per cent per year based on the trust’s market capitalisation, up to £600m, and 0.8 per cent a year after that.

Woodford’s removal as manager of Woodford Equity Income fund earlier in the year meant his only remaining revenue stream was from the fees of the small Income Focus fund.

Administrators froze the fund in October following Woodford’s resignation. In December, Aberdeen Standard Investments announced it would take over the Income Focus fund. The £268m ASI Income Focus fund began operations again on 13 February, ending a long period of limbo for investors.

Read more: Reopening date for Woodford Income Focus Fund revealed

What happened to the investors?

In January, Link Fund said investors trapped in WEI face charges of £10m from the wind-up of the fund. It detailed costs of £5m in January accrued since mid-October when it sacked Woodford. Provision for a further £5.3m of costs has also been made. 

Around £2.1bn was handed back to the 300,000 investors locked in the fund in January, at a payout of 46p to 57p per share compared to its 100p launch price. 

However there is still £500m of Equity Income fund assets stuck in illiquid companies. Given the coronavirus crisis there is unlikely to be much progress made

What is Woodford doing now?

Woodford and a number of colleagues from Woodford Investment Management were in talks with investors about snapping up a number of the fund manager’s old investments.

The stockpicker had been in talks with institutional and wealth managers in March about creating a vehicle to buy back some of the unquoted WIM stakes, according to Sky News. 

He has also reportedly floated the idea of creating a new fund to manage dozens of new holdings. However how this would manifest itself in the current crisis remains to be seen. 

Read more: Investors in Neil Woodford’s frozen fund to incur £10m in charges

What has the saga meant for the investment industry?

The ramifications of the Woodford debacle, particularly on investor confidence, have not gone away.

Woodford’s issues began when he piled investors’ money into early-stage companies and when people asked for their money back he couldn’t sell the investments fast enough. The saga highlighted the problems when highly illiquid assets are held in daily traded open-ended funds.

The Financial Conduct Authority (FCA) has done little to mitigate the situation, instead reminding asset managers of their responsibilities and that suspensions are an appropriate tool.

This year has seen a wave of property fund suspensions after the pandemic cast uncertainty over its assets.

Ryan Hughes, head of active portfolios at investment platform AJ Bell, added that there has been little public industry discussion on the appropriateness of funds holding illiquid assets being able to deal daily.

“It’s the elephant in the room and there is no first mover advantage for asset managers to do this, meaning it will have to be led by the regulator,” he said. “While conversations may well be happening behind the scenes, this needs to be accelerated and made public to help regain investor confidence.”

“It is absolutely vital that the asset management industry properly takes on board the lessons that should be learned, and quickly, or else miss a huge opportunity to help regain the trust and confidence of so many investors.”

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