Woodford Investment Management’s flagship fund has finally shut down

  • Nov 17, 2019 GMT
  • Team Kalkine
Woodford Investment Management’s flagship fund has finally shut down

On 14th October 2019, came the last for LF Woodford Equity Income Fund, the flagship fund of the christened Woodford Investment Management LLP, promoted by Neil Woodford, the hallowed and much celebrated fund manager of Great Britain who at one point of time was regarded as the most successful fund manager of the country. The fund, which was launched with much fan fare in 2017 was widely anticipated to become one of the most successful funds as it had the backing of some of the most successful people in the industry, had an uneventful ending and is slated to wipe out nearly a third of its investors wealth once the asset sale and liability disbursement process of the fund is complete.

Neil Woodford, prior to the establishment of Woodford Investment Management LLP,  has had an illustrious carrier. An alumni of University of Exeter and the London Business school, he commenced his career with Reed Pension Fund and becoming a fund manager first with Eagle Star Insurance Company before moving on to Invesco where he would earn his success and fame of being the most successful fund manager of the United Kingdom. At Invesco, Neil Woodford was responsible for running of two of its most successful funds; the Invesco Perpetual Income fund valued at £10.36 billion and the Invesco Perpetual High-Income fund valued at £13.64 billion during his tenure his tenure as the fund manager. Neil who had an illustrious carrier with Invesco spanning almost twenty-five years has been credited for successfully avoiding the worst phases of the 90’s Dot Com bubble and the financial crisis of 2008-11 era.

In 2014 when he promoted Woodford Investment Management LLP, he wanted to emulate much of this success and fame that he had earned at Invesco while not being restricted  by the rules and guidelines that guided the decision making process at Invesco. It must have been the idea that after being at the helm for twenty five years a man must now know it all; that him and people associated with Woodford Investment Management LLP must have thought that this progeny of his would definitely turn out to be one of the most successful fund houses of the United Kingdom if not the most successful. However, as it turned out, Investment management process is a deep and complicated process not to be bound within the confines of the animus of one single individual. The man who once had the Midas touch now suddenly started turning in charcoal.

For this whole fiasco however, Neil Woodford is himself to blame. It turns out that he had disregard and disdain for the regulations of the fund management industry which ultimately led to his eventual downfall. It is one of the primary regulatory requirements to maintain at least ten percent of a funds assets to meet any redemption requests should they be forwarded at any point of time.  The fund however, broke this rule on a number of occasions. The Financial Conducts Authority (FCA) which is responsible for the overviewing of the working of these fund houses had been investigating this fund for quite some time before it was suspended for trading in July 2019. The Authority in its reply to a query from the treasury committee of the British parliament had informed that the fund had violated this key regulation on a number of occasions and was being constantly monitored. The death blow to the fund however came in the month of June, when Kent County Council Pension Fund, a key investor decided to withdraw £255 million of its investments from the fund leading to a massive liquidity crisis. The fund which mostly held assets that were relatively illiquid had to suspend dealings for twenty-eight days starting 3 June 2019 for the fear of further redemption requests.  The fund was being monitored by the regulatory owner for a possible reopening in December 2019. In the meantime, the fund tried by all means available at its disposal to find suitable purchasers for its invested assets should any redemption requests be forwarded when the fund opens again for dealing. During this whole period however, the fund was not able to liquidate its investments leading to a further deepening of the crisis.

Neil Woodford, in a letter to investors on June 12, 2019 had requested them to stick on to the fund while blaming his own style of investing for the crisis. He requested more time from the investors so that he could get a better price, which of course never happened. The fund which at the beginning of the crisis was valued at approximately £3.5 billion will be losing nearly a billion pounds in value when it is finally disposed of.

Link Fund Solutions, which has the legal and administrative controls of the fund while announcing the closure of the fund on 14th October 2019 also informed that it is firing Woodford and has appointed Blackrock and PJT partners to dispose off the remaining assets with the fund. Link while making the announcement made the assertion it would not be viable for it to open the fund in December 2019 as had been stated earlier and that opening of the fund might bring out a flood of redemption requests taking the fund into a deeper liquidity crisis and causing considerable loss of value for the remaining investors.

The announcement further stated that investors would be getting back their funds in tranches from January 2020. A day after the decision to shut down the Fund, Neil Woodford himself decided to shut down Woodford Investment Management LLP along with two other funds that were bearing his name, despite of the fact that they were hold significantly large portion of their assets in liquid or near liquid form and would not have to face a similar crisis.

In the meantime, a number of entities have started to approach PJT partners which has been entrusted to dispose off much of the illiquid assets of the erstwhile funds portfolio with offers to buy the holdings at significantly discounted prices than Neil Woodford would have wanted them to sell.

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