Neil Woodford’s beleaguered Woodford Equity Income fund will not re-open to investors. Four months since the fund was forced to suspend trading, the former star manager has confirmed the Equity Income fund will be wound-up.
But the fund manager, who launched his flagship fund in 2014, does not agree with the decision to close the fund. “This was Link’s decision and one I cannot accept, nor believe is in the long-term interests of Woodford Equity Income fund investors,” said Woodford.
Link is the Authorised Corporate Director of Woodford Equity Income, charged with the day-to-day administration of the fund. It has taken the decision to wind-up the fund and return any remaining assets to investors from January 2020 onwards.
Why is the Fund Being Wound Up?
Woodford Equity Income fund closed on June 3, after it was unable to meet investor redemption requests. This was largely due to the fact that the fund’s holdings in illiquid assets and unquoted companies had risen and Woodford would have been forced into a fire-sale of his assets in order to raise enough cash to return to the investors who were trying to sell out of the fund.
Woodford promised to close the fund and reposition its portfolio back into the liquid, large-cap, FTSE stocks in which the veteran investor had previously had so much success investing. In September, Link said the fund was set to open again in December this year.
But performance has continued to disappoint in the months since the fund closed. Since suspending, it has dropped 19.4% while the FTSE All Share has climbed 1.8%.
Woodford Equity Income is down 27.7% over the past year, and down 35.9% over three years.
Link said that while progress had been made to reposition the fund’s portfolio, it was not sufficient to allow certainty as to when the repositioning would be fully achieved and the fund would be able to re-open.
Link said: “We have therefore concluded that it is now in the best interests of all investors for the fund to be wound up by way of an orderly realisation of the fund’s assets.”
The firm said it had considered simply extended the suspension of the fund or merging it with another but concluded neither option would be viable or in investors’ best interests.
The fund is formally expected to close on January 17 2020. The delay is because rules state that investors are to be given three months’ notice.
What Next?
BlackRock Advisors has been appointed as the transition manager for “Portfolio A” – the fund’s listed investments – with immediate effect. It will look to sell the fund’s holdings and use the proceeds to purchase money market funds and FTSE 100 index instruments.
Park Hill has been appointed as a specialist broker to assist in the selling of “Portfolio B” – the fund’s unlisted and illiquid listed assets. It has been in this role since the suspension of the fund.
While the wind-up takes place, the fund will be renamed LF Investment Fund.
Link will not take a fee while the wind-up takes place and will backdate this to the point the fund was suspended. However, it will have to pay BlackRock’s fees and those of the depositary, administrator, custodian and auditor. Brokerage and legal costs will also be borne by the fund.
Morningstar's Peter Brunt says of the fees: "We find it surprising and disappointing that Blackrock and Park Hill have not made any concessions under the new management set up. While we acknowledge that there will be costs involved, it is hard to argue the need for a full management fee when the objective is to sell assets."
When Will Investors Get Their Money Back?
Investors can expect to receive a first distribution by the end of January 2020, the size of which will depend on how much of the fund’s portfolio can be sold by then. Morningstar's Brunt said that the transactions since the fund suspended suggests the first tranche of distributions will be in the region of £1 billion, around a third of the fund's assets.
Less liquid assets will likely take longer to sell and will be done so “over time in an orderly manner to seek to limit the loss of value which would be the key risk if they were sold on a forced or ‘fire sale’ basis”. Link said it would keep investors updated on the sale of these assets.
It is still unclear what will happen to the two other fund's run by Neil Woodford. The Woodford Income Focus fund has remained open to investors but has seen significant outflows in recent months.
Meanwhile, the Woodford Patient Capital Investment Trust has seen its share price plunge amid uncertainty about its future - its shares were down 6.7% to a record low of 35p this morning. The board of the trust has previously said it is considering alternative options for the trust, one of which could be to sack Woodford and appoint a new manager.
Experts say, that against this backdrop, the viability of Woodford Investment Management as a business looks doubtful.
What do the Experts Say?
Ben Yearsley, director at Shore Financial Planning, said: “This just shows that unquoted holdings shouldn’t be held in open-ended funds. The FCA should now look at this and go further than it went recently to ensure this can’t happen again and essentially outlaw unlisted holdings from the open-ended fund structure.”
Ryan Hughes, head of active portfolios at AJ Bell, said: “Today’s announcement at least confirms the end to a sorry saga, but this will be of cold comfort for investors locked in the fund. For the Woodford debacle to have any positive outcome, it must now serve as a catalyst for the FCA to speed up its review of illiquid assets held in Ucits funds.”
Adrian Lowcock, head of personal investing at Willis Owen, said: “Although there were rumours this would happen, this is truly shocking news. We have seen the complete demise of the most famous fund manager the UK has seen for years. Investors knew the scenario was bad, but the indication from Woodford thus far had been that the fund would re-open.”
