Exclusive Neil Woodford interview: who he blames for his fund’s collapse

Tuesday 17 December 2024 12:58 pm
 |  Up to date: 

Tuesday 17 December 2024 1:02 pm

The yr 2013 had been a great one for the star stockpicker Neil Woodford. 

Invesco’s key moneyman had already bagged a CBE for providers to the economic system in June and was now readying to strike out on his personal with a solo fund, parting methods with the agency the place he constructed his fame.

Extra success adopted and by June the subsequent yr the Berkshire-born investor had raised a report £1.6bn for his new enterprise, dwarfing comparable autos launched by rival managers. In its first 12 months, Woodford Fairness Earnings fund delivered an 18 per cent return to buyers.

“This weekend, a whole lot of hundreds of small buyers – lots of them pensioners – shall be saluting Britain’s very personal Warren Buffett,” wrote a glowing BBC profile on the fund’s yr anniversary in 2015. 

He was, in line with the headline, “the person who can’t cease being profitable”.

Simply 9 years later, and that fame lies in tatters. The as soon as feted fund supervisor faces a mass marketing campaign to strip him of his 2013 gong. “Disgraced” now prefixes his title and the narrative of a hubristic investor who believed his personal hype has taken maintain within the Metropolis and past.

However the man on the coronary heart of that story has a barely totally different model of the way it all unravelled. 

In his first media interview in over three years – and the primary since a landmark ruling on the fund’s downfall by the Monetary Conduct Authority – Woodford tells Metropolis AM his facet of a narrative that shook the Metropolis, left a whole lot of hundreds of individuals out of pocket, and reshaped the tradition of retail funding within the UK.

And he’s pointing fingers in loads of instructions.

What we find out about Woodford

Woodford climbed shortly up the ranks at Invesco with a fame for selecting winners on London’s inventory market, finally managing round £33bn for the corporate.

One journalist quipped his former employer could be “wetting themselves” when he introduced his exit, such was his fame for sucking capital in direction of him and beating the efficiency of London’s indices.

“I’ve met companies in current weeks which have immense potential and supply improbable funding worth,” mentioned Woodford on the launch of his solo enterprise.

“My whole focus is discovering firms like this that I imagine can ship long-term worth to the buyers which have the arrogance to put money into my fund.”

It was a continuation of the mantra on which Woodford had constructed his former success: discover high quality firms and maintain the shares for a typical horizon of 15 years.

He had tasked an Aussie fund administrator known as Hyperlink Fund Options to be the fund’s authorised company director (ACD), that means it had regulatory duties for the administration of the fund, overseeing and monitoring it in areas like liquidity threat.

Scores of buyers started flocking to the car on account of its promotion on funding platforms and the supervisor’s rising fame as a market sage.

“Neil Woodford was hailed as an funding guru by the monetary press and funding platforms, notably Hargreaves Lansdown,” one investor later mentioned.

The fund finally swelled to a whole lot of hundreds of buyers and was value £10.2bn at its peak.

However within the years following the 2016 Brexit referendum, that efficiency started to falter. Woodford’s returns started to sag behind the market and dent his fame for unwavering development. 

Buyers started to drag cash from the car, first in drips, then in a torrent. Lastly, Kent County Council withdrew a big chunk of money in June 2019.

Hyperlink moved instantly to dam buyers from withdrawing their money – and the shattering of the parable of Woodford was full.

However, talking to Metropolis AM, the fund supervisor is defiant. He says he was caught simply as off guard as his buyers by Hyperlink’s choice to dam withdrawals.

“I believe individuals imagine that for 12 months main as much as the suspension, we have been being instructed on a week-by-week foundation that it is advisable enhance the liquidity and when you don’t, we’re going to need to droop,” Woodford says.

“There wasn’t a single point out of that. I came upon they supposed to droop quarter-hour earlier than they did really droop.”

On the coronary heart of the preliminary panic, and central to the questions following the fund’s collapse, has been the liquidity dangers posed by his bets on unlisted firms.

Regulation corporations and the regulator advised he took dangerously outsized positions in corporations that would not shortly be become money. Nonetheless, the supervisor has now claimed that his emergency actions within the weeks following show in any other case.

Following the suspension, Woodford says he was capable of create round £1bn of money in six to eight weeks, deploying it into FTSE 100 and FTSE 250 shares.

“64 per cent of that money was created from gross sales of securities thought-about to be the illiquid a part of the portfolio that will take over 180 days to promote,” he says.

“Even confronting an fairness market that knew that I used to be compelled to promote, I achieved higher sale costs than estimated by Bloomberg and significantly faster than estimated.”

He claims that sale of belongings raises questions over whether or not the fund wanted to be shuttered in any respect, given the excessive stage of liquidity he generated within the months after suspension.

“Now, how I took a portfolio from one which was speculated to be completely illiquid to at least one that was very liquid, is a query that has by no means been addressed or answered,” Woodford provides.

“And the reply to that query, in fact, is that I imagine the fund was sufficiently liquid, it might have met redemptions.”

Truthful worth belongings

Though the commentary up to now has been in regards to the fund’s general liquidity stage, Woodford believes Hyperlink’s focus when deciding to droop the fund was on the extent of honest valued belongings throughout the fund.

Truthful worth pricing is used when an organization is listed however has restricted or no dealing. Hyperlink had used it on the unquoted firms Woodford owned that had debuted on area of interest Guernsey inventory change, TISE.

The ACD had authorised honest valued belongings coming into the portfolio as late as April 2019, when it allowed Woodford to maintain a holding in Benevolent AI when it was listed on TISE, the supervisor says.

Nonetheless, the share of securities topic to honest worth pricing (excluding unquoted firms) in Woodford’s portfolio elevated considerably between 2017 and the month earlier than the fund was suspended, from 0.2 per cent of belongings to 12.4 per cent, knowledge from the FCA confirmed.

When the fund was suspended, the mixed ratio of each unquoted firms and honest worth belongings had reached 21.5 per cent of Woodford’s portfolio. The FCA had beforehand ordered Hyperlink, in April, to carry the ratio beneath 10 per cent inside six months.

So why didn’t Woodford merely scale back the honest worth belongings within the fund? 

“We initiated a course of to promote all of the personal belongings in April earlier than the fund suspension, however, following Hyperlink’s choice to droop, we weren’t allowed to get the method going and the those who we contracted with weren’t allowed to exit to the market to promote the belongings till the industrial phrases had been agreed between Hyperlink and them,” he says.

“Hyperlink didn’t signal the paperwork that they wanted to signal to permit us to get occurring that course of for over two months after the suspension. So I don’t suppose that doc was signed till the beginning of August.”

Hyperlink then determined to liquidate the fund simply 4 months after its suspension, whilst many funds previously have stayed suspended for a yr or longer.

Hyperlink Fund Options declined to remark.

The fund’s liquidation despatched shockwaves by the monetary trade and blocked a whole lot of hundreds of buyers from accessing their money.

Retail buyers have reported now not having the ability to afford mortgages, shedding their pensions, and having to make cutbacks to afford their day-to-day dwelling bills due to the scandal.

“We have now misplaced a really important amount of cash which we are able to unwell afford as pensioners,” mentioned one investor.

The method to refund buyers took years, with Hyperlink finally paying them again partially out of their very own pocket to flee additional penalties from the Monetary Conduct Authority.

What this implies

So, the place does the accountability for the collapse of the fund lie?

The Monetary Conduct Authority blamed each Woodford and Hyperlink for the collapse, with a choice issued in April, finally presenting the previous fund supervisor with a warning discover.

As a warning discover is just not a remaining choice, the FCA’s Regulatory Choices Committee will now resolve what authorized motion, if any, to take towards Woodford and his firm.

Woodford lays the blame squarely on Hyperlink, stating that the ACD mentioned the FCA had signed off on the liquidity framework he was utilizing, even displaying him a PowerPoint presentation with the small print of the framework that that they had introduced to the regulator.

He additionally claimed that Hyperlink had instructed him that the liquidity framework utilized by his fund “was materially much like the framework that they have been utilizing for all their purchasers”.

“Apparently, I’m now the one one that ought to have identified that it was poor. No one within the FCA, no person in Hyperlink, no person within the depository, no person in Woodford Funding Administration’s threat and compliance division,” Woodford added.

He famous that whereas the FCA’s report on the incident had accused him of a “faulty understanding of duties”, it had not accused him of breaking any guidelines, even after 5 years of investigation.

In the meantime, Hyperlink would have been fined for £50m by the regulator, if it had not agreed to pay out settlement money to Woodford’s buyers who have been nonetheless trapped within the fund.

The shortage of decision – and the truth that Woodford himself has not been reprimanded – has left many buyers despairing for the way forward for the UK monetary trade.

“I really feel fully let down by the monetary regulatory providers within the UK and have misplaced all confidence in investing in something aside from excessive avenue banks and constructing society financial savings schemes,” one Woodford investor mentioned.

“It’s a sew up. Buyers lose out. FCA and Hyperlink pat themselves on their backs and keep it up doing unhealthy issues,” added one other.

Woodford has escaped formal sanction over the car up to now, and has returned as a monetary commentator on his weblog.

However 5 years on, his message is just not certainly one of apology, however a wider warning for the trade as an entire and the hazards of turning into a scapegoat.

“If you’re a fund supervisor, you might be nervous by the implications of this case,” he says.

“As a result of even if in case you have managed your funding threat throughout the framework utilized by your ACD, authorised by the depositary, with the visibility of the FCA, you should still be anticipated to check and problem that framework, and could possibly be sanctioned for not doing so.”