Fate of trapped investors shows little was learnt from financial crisis, says UK MP
Money manager Neil Woodford’s £3.7bn equity income fund frozen because of reliance on illiquid investments
London — Neil Woodford, one of Britain’s best-known money managers, appears to have failed to learn lessons about risk from the financial crisis a decade ago, an MP said on Wednesday, echoing criticism by regulators of his strategy.
The £3.7bn LF Woodford Equity Income Fund was frozen on June 3 because it could not meet redemption requests and has since said it will switch to investing in larger, listed companies.
Hundreds of thousands of small savers have money tied up in the fund, which analysts say could be frozen for months.
Neil Woodford’s use of illiquid assets shows “he seems to have learnt little from the financial crisis”, MP Nicky Morgan, chair of parliament’s treasury select committee, told an Investment Association conference on Wednesday.
Andrew Bailey, CEO of Britain’s Financial Conduct Authority, said on Tuesday that Woodford had taken full advantage of flawed EU laws in investing in unlisted or barely traded stocks, totalling a fifth of the fund’s investments at the time of suspension.
“There will at the very least be a reassessment of rules around liquid assets and illiquid assets with respect to funds,” said Julian Roberts, analyst at Jefferies, adding that it was possible that the fund could close.
In line with Bailey’s testimony to the committee on Tuesday, Morgan told conference delegates that had a more flexible principles-based system been in place to regulate UK retail funds, Woodford’s fund may not have pushed liquidity limits.
Morgan also said she would back tighter regulation of “best buy lists” used by platforms such as Hargreaves Lansdown, which has 300,000 clients exposed to the suspended fund. It had the fund in its best buy list until the day of suspension.
Woodford is on the verge of appointing PJT Park Hill, a division of the investment bank PJT Partners, to offload stakes in private companies such as Atom Bank and Oxford Nanopore, a source familiar with the matter said late on Tuesday.
The equity income fund only publishes its top 10 holdings but British biotech firm Oxford Nanopore was its ninth-biggest holding at end-May, making up 3% of the portfolio. Hedge funds would be likely buyers of the fund’s biotech assets, one industry source said.
July 1 review
Woodford has sold nearly £200m in the fund’s UK-listed assets to meet the fund’s redemption requests, which include a demand from Kent County Council, in southern UK, for the return of a £263m investment by its pension fund. The fund suspension will be reviewed on July 1.
Woodford also had a 7% stake in WeBuyAnyCar owner BCA Marketplace, which received an offer for £1.91bn on Wednesday from private equity firm TDR Capital, boosting its shares.
Assets under management in Woodford’s other open-ended fund, the income focus fund, have fallen below £300m, down 38% since June 3, according to Morningstar data. Hargreaves Lansdown and Fidelity International have cut investment in the fund, although it does not have unlisted assets.
Woodford’s only listed fund, Woodford Patient Capital Trust, which has heavy investments in unlisted stocks, is trading near record lows but was up 0.15% in early morning trade.