Neil Woodfood’s investment empire collapses – What does it mean for investors?
On 15th October 2019, Link Fund Solutions (LFS), the administrators appointed to look after Neil Woodford's troubled Woodford Equity Income fund announced that the fund is to be wound up as soon as is practicable.
Link Fund Solutions said 'After careful consideration, the decision has now been taken not to reopen the fund and instead to wind it up as soon as practicable. This is with a view to returning cash to investors at the earliest opportunity. LFS has concluded that an orderly realisation of the fund’s assets allows the return of money through interim payments to investors more quickly than if the fund had remained suspended for a longer period of time.'
Neil Woodford has responded by saying '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.'
UPDATE: On the 16th October it was announced that Neil Woodford was quitting as manager of his two other funds, Woodford Patient Capital Trust and Woodford Income Focus fund. Neil Woodford will now serve his three-month notice period at the Patient Capital Trust as well as a six-month notice period at the Woodford Income Focus fund. Once complete, he is expected to close down his entire company, Woodford Investment Management.
What will happen to the Woodford Income Focus fund?
The Woodford Income Focus fund has now been placed under a rolling 28-day suspension which will be overseen by administrators Link Fund Solutions. The fate of the fund remains unclear as LFS decides whether to appoint a new manager, transfer the assets into a different fund or wind it down altogether, as has happened to Woodford's Equity Income fund. As in the case of Woodford's Equity Income Fund, fees are expected to be charged on the Income Focus Fund during the suspension, a decision that is likely to anger investors.
What will happen to the Woodford Patient Capital Trust?
The fate of Woodford Patient Capital Trust is as yet unknown. Following the news of Neil Woodford quitting as manager, the board announced that it was 'in advanced discussions' with prospective new managers. It is unclear however, whether a new management team would decide to keep the trust running or sell its assets in order to return money to investors.
Why has Neil Woodford's Equity Income fund been wound up?
Having suffered 23 consecutive months of 'net outflows' (withdrawals being greater than new deposits) the decision was taken to suspend the fund in June. The issue was compounded as the Woodford Equity Income fund held large stakes in smaller unlisted companies, which are difficult to sell.
Attempts have since been made to sell-off the investments made in unlisted businesses however they had not been sufficient to allow reasonable certainty for when the fund would reopen and so the decision was made to wind up the fund instead.
When will investors get access to their money back from the LF Woodford Equity Income fund?
Rules state that there must be at least a three month notice period and so it is expected that investors should start to gain access to their money mid to late January 2020. The Financial Conduct Authority (FCA) said 'Winding up the fund will allow the return of money to investors through a number of distributions, likely to begin in January 2020. This means investors should receive some of their money back sooner than had the fund remained suspended for a longer period.'
How much will investors get back from the Woodford Equity Income fund?
It is impossible to say how much money will be returned to investors but it is inevitable that losses will be made. Since the fund's suspension back in June, the fund's value has shrunk by 20% due to poor investment performance. The situation wasn't helped by Neil Woodford's refusal to cut his fund management fees, meaning that those that had money trapped in the fund were being charged for the privilege. We will continue to update this article as more information becomes available.
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