Interactive Investor

Jeff Prestridge: the ongoing Woodford debacle is a stain on investing

6th October 2020 08:45

Jeff Prestridge from interactive investor

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The Woodford Equity Income fund needs to be wound up quicker, our columnist argues.

Should we be bothered that the investment debacle that was Woodford Equity Income drags on like an overlong Greek tragedy? 

Yes we should, we really should. It’s a boil that needs to be lanced quickly so that we can all move on – ‘we’ being investors and the fund management industry. It remains a blot on the investment landscape, and as long as it is there it will undermine confidence in retail investment.

Some 16 long months have passed since the investment doors were suddenly shut on Woodford Equity Income, a £3.7billion high-risk investment fund dressed up as a me-too conservative play on the UK stock market. 

Although some thought the fund’s ‘gating’ back in June last year would be temporary, it soon became apparent that Mr Woodford had built a portfolio at odds with the fund’s branding. That is, it was nothing like the kind of equity fund that he had become famous for in the 1990s and early 2000s at investment house Invesco Perpetual, where he generated rich rewards for investors from a basket of defensive UK shares. 

While the subsequent decision to wind up the fund took some by surprise when it was announced in October last year (not least Mr Woodford who was sacked for his sins), actions have proved harder than words. 

To the great frustration of some 300,000 investors with wealth tied up in the fund, its dismemberment has been a truly messy and protracted affair. It’s still ongoing, and according to Link Fund Solutions (the fund’s ‘authorised corporate director’ or overseer), the last vestiges of Woodford Equity Income’s eclectic portfolio are unlikely to be disposed of before the middle of next year at the earliest.

Indeed, it could well be more than two years – from the date the fund was closed - before investors are able to finally extricate themselves from it and move on. A tortuous and costly process.

The latest missive from Link, published at the end of last month, confirms the costliness. According to the fund’s report and accounts for the 15 months to the end of March this year, the two investment advisers appointed by Link to butcher the portfolio Mr Woodford had left behind were richly rewarded for their work.

Global investment manager BlackRock, brought in to offload the portfolio’s easily tradeable assets, received more than £11 million in fees for its work. I sometimes think I’m in the wrong business. This money, it must be remembered, reduces the cash pot available to Woodford investors.

Investment bank PJT Park Hill has so far earned more than £3 million, although its work is not yet over. 

It has had the difficult task of selling some of the illiquid stakes that Woodford acquired and it still has some £288 million of these assets to dispose of. Given PJT Park Hill has yet to find a buyer for them, I would be amazed if it gets anything near £288 million. After all, it’s a buyer’s, not seller’s, market.

Add in some £2.4 million of legal fees taken from the fund in connection with the sale of some of the illiquid assets – plus the £65,000 of daily fees that Mr Woodford took from the fund after it was gated through to his sacking – and it is no surprise that most Woodford investors remain in a foul mood. They want both closure and some form of justice to be delivered. 

In other words, those parties involved in the disintegration of Woodford Equity Income held to account for their actions, including Mr Woodford (of course) and Link (whose job from the day the fund was launched was to safeguard the interests of investors).

So, is justice in sight? Not from where I am sitting.  Although a number of lawyers are assessing whether to launch class actions on behalf of investors against the parties involved (all or some of them), they’ve been contemplating for a long time. Not one has yet pressed the green ‘go’ button. Even if one does, it is likely to be a long-drawn-out affair with no guarantee of success or substantial compensation for investors.

Meanwhile, the Financial Conduct Authority, the City regulator, has been probing the fund’s closure since June last year. But its investigations are progressing at a pace that would make the famously slow character of Brian the snail from The Magic Roundabout look like Usain Bolt. 

Maybe the regulator will surprise us in the near future and hold those involved in failed project Woodford Equity Income to account. But maybe not. My money is on the latter, but then I’m a cynic.

‘Justice for Woodford Equity Income investors’, I say. Please. And sooner rather than later. 

Jeff Prestridge is personal finance editor of the Mail on Sunday. He is a freelance contributor and not a direct employee of interactive investor.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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