What do the First World War and the Neil Woodford debacle have in common? Not a lot really. But in both cases, there were strong reassurances it would all be over by Christmas.
In Western France in 1914, the deployment of the modern machine gun and the stalemate-inducing pain of trench warfare quickly put paid to that suggestion. In the latter, somewhat less bloody example, illiquidity remains the real stick in the mud.
Here is what Link Fund Solutions – the administrator of Woodford Investment Management’s UK Equity Income fund (WEIF) – said on September 23 2019, three months after WEIF suspended on 3 June.
“We anticipate that the suspension of dealing is likely to last until early December while we implement the strategy to re-position the portfolio in order for the fund to be re-opened at that time, and which is conditional upon achieving the target fund profile,” it said.
“In our view, this is a realistic amount of time for Woodford to complete a measured and orderly re-positioning of the Fund's portfolio of assets ensuring that there is adequate liquidity whilst preserving or realising the value of the assets.”
The Woodford Wait
Precisely 17 months later, on February 23 this year, one investor was getting frustrated.
“The wheels seem to be turning very slowly,” they wrote on the MoneySavingExpert forum for Woodford investors, not of the issue of liquidity per se, but of the pace of legal action against Link and Hargreaves Lansdown, and the likelihood of compensation payouts. As for liquidity itself, payments from the stricken fund have begun, but progress has stalled.
New lawsuits are emerging all the time, too. Just last week, fund manager Woodford was named in reports of fresh legal action by law firm Harcus Parker, which is one among several ambulance chasers seeking redress on behalf of disappointed customers.
What a right old mess, and one that shows no sign of resolution soon. For what it's worth, Link’s current estimations regarding the winding up period may still prove wildly inaccurate.
“Link has indicated that the winding up process may even run into 2023, dragging out the misery for investors,” says Ryan Hughes, head of active portfolios at AJ Bell. Somehow I suspect Hughes is being kind.
“Over the past three years, investors have received four payments totalling £2.54bn. But the last of these was back in December 2020, with Link clearly struggling to offload the nine highly-illiquid companies remaining – including the well-known Atom Bank – at a sensible price.”
Obvious in Hindsight
So what are the lessons? Yes, all the much-vaunted stuff about the inherent unsuitability of high-risk funds for retail investors applies. So too do reflections on the promotion of financial instruments. My profession is also partly to blame too, if you’re happy calling it one.
This week, in an interview with journalist and investment author Robin Powell hosted by The Investing Show, two seasoned hacks gave their view. They have both written books about the Woodford affair, and have both spent months understanding what went wrong.
Financial News asset management correspondent David Ricketts wrote When The Fund Stops, tracking Woodford’s rise and eventual fall in 2019. He was surprised to learn how easily Neil Woodford made it onto Hargreaves Lansdown’s “best buy” lists, despite earning most of his track record at a completely different firm (Invesco), on a totally different mandate (not illiquid companies).
“Having spoken to people who worked at Hargreaves Lansdown in the research for my book, the expectation was that he would just carry on doing what he was doing,” he says.
“Now, if you go and speak to any other new fund manager coming into the market, they will tell you they have to jump through a lot of hoops before they get put onto a best buy list. You need a track record of at least three years before you’re even looked at. Launching a fund should not just be seen as carrying on what you’re doing at your old shop.”
Owen Walker is the Financial Times’ European banking correspondent, and the author of Woodford exposé Built on a Lie, published in spring last year. Like Ricketts, he questions the way in which Woodford’s funds were promoted, but also highlights the cult of personality surrounding star managers, and the way journalists get sucked in.
“This culture really came about in the 80s, 90s and early 2000s,” he says.
“We’re all financial journalists. You go in and you’re writing about numbers, but you want a character, you want a story, you want some colour in there. Neil Woodford provided that in spades.
“He was down to Earth in many ways. He was a multi-millionaire. He lived a lifestyle we might imagine if we came into money: he bought fast cars, big places in the countryside, and later got into a lifestyle of fast horses. […] The way he spoke to journalists was matter of fact [though]. He could explain what his portfolio was, what his strategy was, in very easy terms.
"That really came across, compared to maybe some of the stuffier and bookier fund managers we’re used to dealing with. The financial press certainly built him up. […] I think he really believed his own press. In the dying days of his own business he was convinced and hell-bent – having spoken to people he worked with – that his course would see him through.”
I really do buy this point, because I'm guilty of it myself. The first ever story I wrote for a financial publication highlighted the opinions of one Mr Neil Woodford. Not about his funds though. About Brexit, of all things. It's sobering to think how much writing that story mattered at the time. Nowadays nobody cares. They just want their money back.
Sued or Exonerated
Just as an aside, investors aren’t the only ones getting impatient. Star managers aren't exactly deserving of much sympathy in the post-WEIF era, but spare a thought for them.
This is what Lindsell Train founding director and star portfolio manager Nick Train had to say at an event two weeks ago:
“It is three years almost to the month since the suspension of the Woodford fund and we have not been offered any report on the circumstances," he told an event.
"People who participated in that, to a greater or lesser extent, need to be sued or exonerated. I can see why people are waiting for that.”
The multiple failures that led to the downfall of Woodford Investment Management continue to curse the entire asset management industry, then. But nobody really emerges with much credibility.
The regulator looked very much caught with its pants down when then-Treasury Select Committee chair Nicky Morgan asked why it had learned of Woodford's travails not from the man himself but from the news.
For their part, financial advisers who failed to get out in time have been left wondering about their own suitability assessments. And, as I argued several weeks ago, one big business in particular may not be factoring the reputational damage of Woodford on its future business plans. Investors-to-be are more fearful of the industry as a result.
As for the poor investors themselves, it might be cruel-to-be-kind to tell them it may not even be over by this Christmas. But that will come as little relief, particularly if they later find out it won’t be over by the next Christmas either. Or the next one.
A revised aphorism, then. We're often told if it's too good to be true it probably is. In this instance you can flip that. If it's too bad to be over by Christmas, it probably won't be.
Ollie Smith is UK editor at Morningstar
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