The Financial Conduct Authority (FCA) has issued former star fund manager Neil Woodford and his eponymous asset management firm multi-million-pound fines for the debacle in 2019, which led to the closure of the Woodford Equity Income fund.
Woodford Investment Management has received a £40m fine while Woodford himself has been asked to pay around £5.9m. Woodford has also been barred from managing funds for retail investors or holding senior management roles.
The equity income fund was abruptly suspended in June 2019, leaving investors unable to access their money following a £237m redemption from Kent County Council that the fund was unable to meet. It followed a torrid time for the portfolio, which dropped from £10.1bn in assets under management in May 2017 to just £3.6bn in the run-up to its suspension.
The regulator has concluded that Woodford made unreasonable and inappropriate investment decisions between July 2018 and June 2019. In particular, he disproportionately sold more liquid investments and bought more illiquid ones, meaning just 8% of the fund could be sold within seven days.
According to the rules in place at the time, investors should have been able to access their investments within four days, the FCA explained.
The City watchdog said Woodford held a “defective and unreasonably narrow understanding” of his responsibilities and that, despite his senior role, he did not accept that he had a responsibility to oversee the management of the fund’s liquidity.
He also failed to provide proper oversight of Woodford Investment Management’s relationship with Link Fund Solutions (Link), the authorised corporate director of Woodford Equity Income, including after Link raised concerns about the fund’s liquidity.
Steve Smart, joint executive director of enforcement and market oversight at the FCA, said: “Being a leader in financial services comes with responsibilities as well as profile.
“Woodford simply doesn’t accept he had any role in managing the liquidity of the fund. The very minimum investors should expect is those managing their money make sensible decisions and take their senior role seriously. Neither Woodford nor Woodford Investment Management did so, putting at risk the money people had entrusted them with.”
Woodford and his firm are set to challenge the decision. They have referred the decision notices to the Upper Tribunal where each will present their case.
Ryan Hughes, managing director at AJ Bell, said it was a “damning judgement” that offers “a measure of solace” for investors “ensnared in the debacle”.
“In addition to a personal fine of nearly £6 million, the FCA has banned Woodford from holding senior manager roles and managing funds for retail investors, effectively ending any hope he had of returning to manage money for retail investors.
“The downfall of the former star of UK investment will surely be remembered as one of the most catastrophic episodes in the history of the UK asset management industry,” he concluded.