The former star stock picker Neil Woodford and his investment management company have been fined almost £46m by the UK’s financial regulator over the collapse of his popular equity fund.
The Financial Conduct Authority (FCA) has given Woodford a penalty of £5.89m and banned him from holding senior manager roles and managing funds for retail investors and fined Woodford Investment Management (WIM) £40m.
The penalties are for failures in their management of the flagship Woodford Equity Income Fund (WEIF), which closed in October 2019 after investors, including many ordinary retail customers, rushed to withdraw money in response to the poor performance of a number of company investments, including some hard-to-sell illiquid assets.
The value of the fund fell from a high of more than £10.1bn in May 2017 to £3.6bn in the run-up to its suspension.
The fund was frozen and later closed and wound up. About 300,000 people had invested in the fund, including 130,000 through the investment platform Hargreaves Lansdown, which is being sued by thousands of investors. Woodford resigned in mid-October 2019 and subsequently closed his investment company.
The FCA’s ruling is only provisional and Woodford and WIM have referred the decision notices to the upper tribunal to challenge them.
WIM said it “strongly disagree[d]” with the financial watchdog’s findings. It argued that Link Fund Solutions (LFS), the company in charge of the fund’s liquidity, had imposed its liquidity framework on WIM and that the FCA “had never objected to it”. The regulator found last year that Link “failed to act with due skill, care and diligence in its management”.
On Tuesday, the City watchdog concluded that between July 2018 and June 2019 Woodford and his company made “unreasonable and inappropriate investment decisions”, having disproportionately sold more liquid investments – which are easier to sell – and bought less liquid ones over this period.
This meant that at the time of suspension only 8% of the investments held by WEIF could be sold within seven days, the FCA said. Under rules in place at the time, investors should have been able to access their funds within four days.
WIM and Woodford “did not react appropriately” as the fund’s value declined, its liquidity worsened and more investors withdrew their money, the regulator said.
In its response, WIM said the “true cause of the investor losses [was] Link’s decision to liquidate the fund in October 2019” and that in the four months of its suspension, Woodford had been actively restructuring the fund. The company said it had warned Link that Kent county council might redeem in June 2019, adding that Link “had at no time indicated to WIM that this might prompt the fund’s suspension”.
WIM also criticised what it described as “a disorderly fire sale of assets by Link”. It said Woodford and the company had “great sympathy for their investors who were impacted by the suspension, and who suffered financial loss when the fund was liquidated. However, they continue to believe that any loss suffered was avoidable and was a product of bad decisions made by Link after the suspension, which were overseen by the regulator”.
Woodford now runs a website called Woodford Views to share, he says, “insights from over 35 years in the investment industry”.
Andy Agathangelou, the co-founder of the Woodford Campaign Group, reiterated calls for the former fund manager to be stripped of his CBE in an open letter to the honours forfeiture committee.
In its ruling, the FCA said Woodford “held a defective and unreasonably narrow understanding of his responsibilities”.
Steve Smart, a joint executive director of enforcement and market oversight at the FCA, said: “Being a leader in financial services comes with responsibilities as well as profile. Mr Woodford simply doesn’t accept he had any role in managing the liquidity of the fund.
“The very minimum investors should expect is those managing their money make sensible decisions and take their senior role seriously. Neither Neil Woodford nor Woodford Investment Management did so, putting at risk the money people had entrusted them with.”
