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Fallen fund star Woodford's firm suffers ignominious end

Published 10/16/2019, 10:35 AM
Updated 10/16/2019, 10:37 AM
Fallen fund star Woodford's firm suffers ignominious end

By Simon Jessop, Sinead Cruise and Carolyn Cohn

LONDON (Reuters) - Once one of Britain's most celebrated money managers and idolized by a legion of investor devotees, the collapse of Neil Woodford's business has been swift and brutal.

The 59-year-old moved quickly to call time on his eponymous asset management company late on Tuesday, hours after being sacked as manager of the firm's flagship fund by its administrator, Link Fund Solutions.

The move followed four months of efforts to sell out of a number of unlisted and little traded stocks - some 20% of the fund's portfolio according to Britain's regulator - and raise cash to pay off investors irked by weak returns.

With bad news swirling, attempts to raise enough cash were hampered further after some of his biggest investments - including healthcare technology firm BenevolentAI - were revalued at much lower levels.

Woodford's team had initially been given until December to execute on their plan and had hired bankers PJT Partners to aid their efforts. The team also traveled the length and breadth of Britain to persuade advisers and investors to keep the faith.

But on Monday, Link pulled the plug.

In a letter to investors on Tuesday, Link said it was closing the fund as it did not believe the repositioning of the portfolio would be completed by December, potentially leading to a need to suspend again, to the detriment of investors.

In announcing the closure of the firm late on Tuesday, Woodford said he deeply regretted the impact on investors. A spokesman for Woodford was not immediately available for further comment on Wednesday.

A spokesman for Link told Reuters on Wednesday it had always acted in the best interest of shareholders - of which almost 300,000 came from Britain's biggest online investment platform Hargreaves Lansdown (L:HRGV). Hargreaves customers accounted for less than half the investments in the fund.

Woodford was initially surprised and then dismayed by the decision, a company source with direct knowledge of the meeting told Reuters.

"There was no indication of their intentions before that at all ... So this was a real surprise," the source told Reuters.

Dozens of investors equally stunned by the action posted angry messages on Woodford's website, with many also questioning both Link's decision and the role of regulator the Financial Conduct Authority (FCA).

"You made some very strange decisions in my time invested here Sir," said one former investor on Woodford's website. "I’m just relieved I reassessed my decision in early 2018 and made my redemption when I did, it saved me a fortune."

As a 'value' investor, Woodford made his name during a storied 26-year career at U.S. firm Invesco (N:IVZ) by buying shares in companies on which the market had become too pessimistic, hoping to chalk up outsize profits as good news eventually came through and was reflected in the share price.

That style served him particularly well at two junctures: the tech bubble at the turn of the century and during the great financial crisis of 2008-2009. In both cases, he suffered periods of underperformance only to come good in market-beating fashion as many rivals faced meltdown.

Woodford's reputation as an active manager, in a world where investors are increasingly turning to index tracking funds, helped him to grow his assets to more than $30 billion before he struck out on his own with the launch of Woodford Investment Management in 2014.

Once the starting gun was fired, that name spurred investors to invest in first the Equity Income fund, then the listed Woodford Patient Capital Trust (L:WPCT) and, in 2017, the smaller LF Woodford Income Focus fund.

Yet as far back as Invesco, the seeds of Woodford's demise could be seen in his desire to invest a small proportion of his fund in riskier, less liquid investments.

Freed from the more restrictive corporate shackles of Invesco, Woodford became a major backer of technology start-ups, many of them spinning out of Britain's top universities and with the potential to change the world in sectors such as healthcare.

His more conventional yet contrarian take on public market stocks had also led him to double-down on deeply unloved sectors such as UK housebuilders - hit by uncertainty around the impact of Britain's exit from the European Union.

As such, from late 2017 he started to seriously underperform his peer group, triggering outflows of client cash and forcing an almost continual restructuring of the portfolio as he sought to make sure he had enough money on hand to pay off investors.

While that worked for a while, a crunch point was hit in June, when he ran out of money after the pension fund of public sector workers in the county of Kent in southern England, asked to withdraw its cash, triggering the suspension.

Some, though, feel Woodford deserved more time.

"I would much prefer Woodford to sort things out as he has skin in the fund both financially and in terms of saving his reputation," investor Julian Thornett said.

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