The decision to sack Neil Woodford as manager of his flagship Equity Income Fund (WEIF) and liquidate the fund’s assets sent shockwaves through the financial world this morning.
Link Fund Solutions, which has been managing the suspension of the Woodford fund since it was gated in June, announced this morning that the fund would be wound up. But where does this leave WEIF investors?
Why was the Woodford fund suspended?
The Woodford fund was suspended in June, after it became overwhelmed by requests from investors to have their money back. The fund was not able to meet all of these redemption requests, so WEIF suspended trading to avoid being forced into selling off its assets.
Read more: What's gone so wrong for Neil Woodford?
As Authorised Corporate Director of the fund, Link was responsible for overseeing the fund’s suspension, and getting it to a position where it could reopen. Link said it was repositioning WEIF’s portfolio to include more listed holdings, particularly of FTSE companies, because WEIF had a very high proportion of unlisted and illiquid holdings, which are hard to sell quickly.
Why has Link decided to close WEIF?
Link had planned to lift the suspension and reopen WEIF in December, but said this morning it had not made enough progress in repositioning the portfolio and disposing of hard-to-sell assets to guarantee that the suspension could be listed. Therefore, it said it was in the best interests of investors to close the fund.
Despite having reassured investors the suspension would reduce the pressure to offload assets at reduced prices, Woodford lost at least £43.5m selling off WEIF holdings since the fund was suspended.
What happens to the fund now?
The Woodford fund will begin to be wound up “as soon as practicable” after 17 January 2020. The process cannot be started any sooner because regulations require that investors be given three months’ notice before a fund can be closed.
Woodford has been fired as the fund’s investment manager with immediate effect, and his name will also be removed from the fund - which will be renamed the “LF Equity Income Fund”.
Link will oversee an “orderly” sell off of WEIF’s assets, which it said would “seek to limit the loss of value which would be the key risk if they were sold on a forced or ‘fire
Link has split the Woodford fund’s assets into two portfolios, and has appointed Blackrock and Park Hill to sell off the holdings.
Blackrock will be responsible for “Portfolio A” - made up of WEIF’s listed assets - while Park Hill will be responsible for “Portfolio B” - made up of its unlisted and “highly illiquid” holdings.
When will I get my money back?
Link has said cash will be returned to investors at the “earliest opportunity”, and investors do not need to take any action now.
Once the fund’s assets have been sold, its liabilities and the cost of winding up the Woodford fund will paid off. Then the process of repaying investors will begin.
Selling the fund’s listed holdings is likely to be relatively straightforward, and Link said it is expecting to make the first repayment to investors by the end of January next year. But offloading the portfolio’s illiquid holdings is likely to be a much longer process, as unquoted and illiquid assets are much harder to sell, and there have been warnings that investors might not get their money back for a year.
AJ Bell's Ryan Hughes told City A.M. it could take between six and 12 months from January next year to complete the process. “You could easily imagine that this could be going on a year later,” he said.
How will I get my money back?
Who investors will get their money back from depends on how they originally invested in WEIF. Those who invested in the fund via a fund supermarket or adviser should receive their money through the same intermediary once they are repaid by WEIF, while those who invested directly in the fund should get their money back from it.
Will I get back all the money I invested?
The amount investors will get back depends on the value of WEIF, and how much is raised through the sale of the fund’s assets. They may get back less than they had originally invested.
The value of the fund fluctuates depending on the market value of its assets, and if those holdings are sold off for lower prices, investors will receive less money back from the winding-up process.
Will I have to keep paying fees?
Neil Woodford had been criticised for continuing to take in management fees while WEIF was suspended.
Link announced today it would not be taking a fee for acting as Authorised Corporate Director since the suspension of the fund, and would return any surplus left after all other fees are paid to the fund.
The periodic charge paid by WEIF to Link will remain the same while the fund is prepared for the winding-up process. Link will pay Blackrock’s fees, as well as the fees of WEIF’s depositary, administrator, custodian, and auditor using the money from this charge.
The Woodford fund will be responsible for Park Hill’s costs associated with selling off assets in Portfolio B, as well as any brokerage and legal costs.
Link warned investors that these costs will be greater than they have previously been during this process, as all of the fund’s assets are being sold off. Costs for selling off the fund’s illiquid assets are likely to be particularly high.
Who can I contact if I have questions about the fund’s closure?
Investors should contact their financial advisers with any questions about the Woodford fund’s closure and how it could affect them.
Link can also be reached on 0333 300 0381, or investors can email email@example.com.
City A.M. would like to speak to Equity Income Fund investors about their reaction to the fund's closure. Please get in touch via firstname.lastname@example.org.
Main image credit: Alamy