Neil Woodford’s Equity Income Fund, which has locked in investors’ money since June, will never reopen after it was revealed today that it will be wound up.
Link Fund Solutions, which runs the administration of the fund on Woodford’s behalf, said, ‘this is with a view to returning cash to investors at the earliest opportunity.’
Woodford himself has reportedly said that he disagrees with the decision, but the fallen star manager has no choice in the matter and his name will be wiped off his flagship fund.
So what does this mean for the thousands of small investors with savings locked in the fund and how much of their money will they get back?
Woodford’s Equity Income Fund has sunk a further 17% since investors were locked in at the start of June – with its price falling from 100p on 31 May 2019, to 83p on Friday 11 October 2019
What has happened to Woodford’s fund today?
Neil Woodford has been ousted from his own fund, which has effectively imploded.
He has struggled to restructure the fund since locking it down in the summer, and the firm that administrates it, Link, appears to have lost faith that he could reopen it before the end of the year as planned.
One of the biggest issues is that while the fund has been closed to protect investors, it has continued to lose money. Woodford Equity Income investors are down about 17 per cent on where they stood at the end of May, the last day that they could withdraw money. Over the same period the FTSE All Share is up 1.7 per cent.
Link said today that while progress has been made in repositioning assets while it was suspended ‘unfortunately this has not been sufficient to keep the fund on track to re-open in December’.
It admits that it considered other options, like prolonging the suspension, appointing another manager or merging the fund with another one, but says it concluded these would either not be in the best interests of investors or are not viable.
Instead, BlackRock has been appointed as transition manager in preparation for the winding up of the fund, in the belief that will ‘achieve a better outcome for investors’.
BlackRock will seek to sell assets, and return part of investors’ cash as soon as possible once the winding up process begins.
Meanwhile, specialist broker PJT Partners will assist in selling unquoted and less liquid assets.
Facing losses: Many investors risked their cash believing Woodford’s strategy would pay off
What can Woodford investors expect now?
Link wants to avoid a ‘fire sale’ in order to maximise returns for investors, so the full winding up process is likely to take some time.
But the first payout to investors is anticipated at the end of January, although there is no indication yet about how much people might get back.
Link basically admits it doesn’t know, saying:’The size of this first capital distribution will depend upon how quickly the value of the fund’s assets can be realised. We will write to you before this payment is made to provide further details.’
It adds that it’s not currently possible to predict when remaining assets will be sold and remaining money paid out.
Link prepares investors for potential losses, saying: ‘The fund’s value fluctuates in line with the market values of its underlying assets.
‘If assets are sold for lower prices, you will receive less from the winding-up process and this also may be less than you originally invested.’
What do investing experts say?
‘Although there were rumours this is truly shocking news,’ said Adrian Lowcock, head of personal investing at Willis Owen.
‘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 reopen.
‘This collapse is on a par with the implosion of New Star at the height of the financial crisis, and it will shake the funds industry to its core.
We have seen the complete demise of the most famous fund manager the UK has seen for years
Adrian Lowcock, Willis Owen
‘Woodford will be removed as fund manager and the holdings in the fund will be sold.
‘This means investors may have to wait until next year to firstly find out the value of their investment and then to get their money back. Sadly many people will be looking at significant losses.’
Darius McDermott, managing director of Chelsea Financial Services, said Link appeared to have made its decision without much consultation with Woodford Investment Management.
‘The timing does seem a little odd and out of the blue – especially with Brexit possibly just days away.
‘More clarity from Link is required and the regulator needs to be on the ball today, this week, this month, to make sure that investors don’t get hurt any more than they have already.
‘At the end of the day, the most important thing is, whether this is a better outcome for investors?
‘Link suggests that investors will get their money back faster than waiting for the fund to reopen, but I’m not convinced that is the case – December had been earmarked for a re-opening of the fund.’
‘This action also makes Woodford a forced seller of all stocks – stocks that the market place and short-sellers are all aware of. It may well mean that less money is returned to investors, so the jury is still out on this one.
‘My other concern is what happens with Woodford Income Focus and its investors. It’s all a mess and, frankly, I don’t think this is a good outcome for investors at all.’
Woodford’s name is being wiped off the fund
Ben Yearsley, director of Shore Financial Planning, said: ‘In my view, this just shows that unquoted holdings shouldn’t be held in open ended funds.
‘The Financial Conduct Authority should now look at this and go further than they went recently to ensure this can’t happen again and essentially outlaw unlisted holdings from the open ended fund structure.
‘From an investor’s perspective this is an unsatisfactory end, however with the level of redemptions anticipated this feels like the only solution to treat all investors fairly.’
Ryan Hughes, head of active portfolios at investment platform AJ Bell, says: ‘Woodford has not managed to move out of his unlisted assets and into more liquid listed equities quickly enough to re-open the fund in December, meaning Link has determined it’s in the best interests of investors for the fund to close entirely.
‘Woodford’s name is also being wiped off the fund, as the assets will be handed to BlackRock and Park Hill to sell off, meaning Neil Woodford will no longer be the fund manager – instead it will be re-named the “LF Equity Income Fund”.’
‘Link has waived its fee on the fund from the June suspension and investors won’t be charged direct fees while the fund is being wound up.
‘However, investors will still be incurring high costs for the winding up of the fund, particularly selling off the illiquid assets. These costs will be taken out any proceeds from the sale, so will eat into the money investors get back.’
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