The renowned fund manager Neil Woodford has blocked investors from pulling cash from his flagship fund after becoming overwhelmed by customer withdrawals following a series of bad market bets.
A statement on the investment manager’s website said dealings in Woodford Equity Income Fund were suspended after an “increased level of redemptions”. It said the move intended to protect investors and give Woodford time to sell off investments, including in private companies.
The suspension only affects the single fund, which has been the most popular among retail investors. Woodford’s Income Focus Fund and Patient Capital Trust will continue trading. The City watchdog the Financial Conduct Authority said: “The FCA is aware of this situation and in contact with the firms involved to ensure that actions undertaken are in the best interests of all the fund’s investors.”
Woodford’s equity income fund has shrunk by £600m in one month, including at least £187m worth of redemptions and the rest represented by a fall in the value of the fund’s investments. The sudden outflows have helped slash the total value of the fund from £4.3bn on 1 May to £3.7bn by the end of May, according to data from ratings agency Morningstar. That compares with a 2017 high of £10.2bn.
A request by Kent county council to withdraw its £250m investment from the fund last week may have tipped the scales, according to reports. But the suspension means the council will not be able to access its funds until further notice.
“This is a similar position to that faced by numerous open-ended property funds in the aftermath of the Brexit vote, all of which later reopened,” said Jason Hollands, a managing director at Tilney Investment Management.
“While this news is clearly not going to be received well by those who might have wanted to withdraw in the near future, it is in the best interest of remaining investors that the fund is stabilised and not forced into a fire sale of existing assets.”
The suspension means that thousands of retail investors are unable to cash out of their investments for at least 28 days.
Stockbroker Hargreaves Lansdown announced on Monday that it was removing the suspended Woodford quity Income Fund from its Wealth 50 list of favourite funds, which is used to help customers choose their investments. It also cut Woodford Income Focus Fund from the list, even though it is still trading.
The move is a blow to Woodford, as Hargreaves Lansdown just six months ago owned around 30% of shares the equity income fund, according to Woodford’s annual report. Based on the fund’s £8.2bn value at the end of 2018, that stake was worth around £2.5bn.
“We are advocates of long-term investing and think Woodford’s multi-decade track record remains compelling – but we don’t underestimate the disappointment investors must feel with Woodford’s recent performance,” Emma Wall, head of investment analysis at Hargreaves Lansdown, said.
The management company behind Woodford’s fund, Link Fund Solutions, said: “After consideration of all relevant circumstances relating to the fund’s asset we have … come to the conclusion it is in the best interest of all investors in the fund to suspend the issue, cancellation, sale, redemption and transfer of shares in the fund.
“Following an increased level of redemptions, this period of suspension is intended to protect the investors in the fund by allowing Woodford, as previously communicated to investors, time to reposition the element of the fund’s portfolio invested in unquoted and less liquid stocks, in to more liquid investments.”
The news of the suspension has come as a shock to the City, just five years after investors rushed to pour billions into the equity income fund at its launch in June 2014.
Woodford, 59, was awarded a CBE for services to the economy in 2013 and surprised the City when he left investment management firm Invesco in the same year to strike out on his own. Having been in charge of £33bn worth of assets at his former employer, he was known as the City’s kingmaker, with the power to eject FTSE 100 bosses from their jobs through multibillion pound stakes.
He garnered enough admirers during his 26 years at Invesco that many of his investors took their cash and followed him out the door. He launched the Oxford-based Woodford Investment Management just months later and got off to a flying start, attracting £8bn from small investors and delivering market-leading returns.
Industry experts say Woodford has been stung by bad bets on domestic stocks, which have underperformed after the Brexit vote. They include his investment in British outsourcer Kier. Kier’s profit warning triggered a 41% slump in the company’s shares on Monday hitting Woodford’s 20% stake and reducing its value by £37m within hours.
Reports also emerged on Monday that Woodford was holding talks with the German publisher Axel Springer to sell his stake in struggling online estate agent Purplebricks. A spokesman for Purplebricks said the firm “would not comment on this kind of speculation”.
Purplebricks shares have lost around 70% of their value over the past 18 months alone.
• This article was amended on 4 June 2019 to clarify the value of Hargreaves Lansdown’s stake in Woodford’s equity income fund.
