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LF Woodford Equity Income to be wound up as Neil Woodford exits

15 October 2019

Winding up of flagship fund to take place in January as BlackRock appointed to oversee disposal of liquid assets and unlisted holdings continue to be sold off.

By Rob Langston,

News editor, FE Trustnet

Neil Woodford’s flagship LF Woodford Equity Income fund has been handed to BlackRock and brokerage Park Hill by administrator Link Fund Solutions to be wound up in January, a decision that the manager said he “cannot accept”.

Administrator Link Fund Solutions has written to investors informing them that the £3.1bn fund would not be re-opened in December as planned and will instead be wound up as soon as practicable.

The move, the administrator argued, is in the best interests of all investors and follows close discussions with the Financial Conduct Authority, the financial services regulatory body.

However, manager Neil Woodford (pictured) said he does not support the decision taken by the administrator.

“This was Link’s decision and one I cannot accept, nor believe is in the long-term interests of LF Woodford Equity Income fund investors,” he said.

The fund was suspended on 3 June following a period of disappointing performance, concerns over illiquid holdings and a flurry of redemption requests.

Data from FE Analytics shows that in the 12 months to 31 August 2019, LF Woodford Equity Income saw outflows of £1.2bn, although it has been suspended to new redemptions since June.

During its suspension, the fund has made a loss of 15.58 per cent, compared with a 2.76 per cent return for its FTSE All Share benchmark.

Performance of fund vs sector & benchmark since 3 June

 

Source: FE Analytics

The manager was initially given time to reposition the fund into more liquid investments to allow it to reopen in December and meet redemption requests.

While progress had been made, however, the fund administrator noted that there was not “reasonable certainty” as to when the repositioning would be fully achieved and the fund reopened.

“We have therefore concluded that it is now in the best interests of all investors for the fund to be wound up by way of an orderly realisation of the fund’s assets,” the administrator said.

“This orderly realisation will allow the return of money through interim payments to investors more quickly than if the fund had remained suspended for a longer period of time.”

As such, the portfolio will be split into two parts: the listed assets held in Portfolio A and unlisted, highly illiquid assets in Portfolio B.

BlackRock has been appointed to wind down Portfolio A and use the proceeds to purchase money market funds and FTSE 100 instruments.

Specialist broker Park Hill was appointed to assist in selling the illiquid assets of the fund and will continue in that role.

The fund will also be renamed LF Equity Income.

The first distribution will be made by the end of January 2020, although the size of this will depend how quickly the value of the fund’s assets can be realised.

Woodford will continue to manage investment trust Woodford Patient Capital and the more internationally focused LF Woodford Income Focus fund.

Adrian Lowcock (pictured), head of personal investing at Willis Owen, said the move to appoint new managers and was “truly shocking news”.

“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,” he said.

“This collapse is on a par with the implosion of New Star Asset Management at the height of the financial crisis and it will shake the funds industry to its core.”

Lowcock said investors will have to wait until next year to find out how much their investment will be worth but that many people will be looking at “significant losses”.

Ryan Hughes, head of active portfolios at investment platform AJ Bell, said the winding up marked “the end of a sorry saga” and will be of “cold comfort” to those locked in the fund.

“For the Woodford debacle to have any positive outcome it must now serve as a catalyst for the FCA to speed up its review of illiquid assets held in Ucits funds,” said Hughes.

“While no mention is made of Woodford’s other funds, it now seems highly unlikely that he will remain in place as manager of the Patient Capital investment trust, with the board already looking at potential replacements,” he said.

Darius McDermott, managing director of Chelsea Financial Services, said that the timing “does seem a little odd and out of the blue”.

He said: “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.

“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.”

McDermott concluded: “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.”

Performance of fund vs sector & benchmark since launch

 

Source: FE Analytics

Since launch in June 2014, LF Woodford Equity Income has lost 16.70 per cent while the benchmark has risen by 33.91 per cent and the average IA UK All Companies peer is up 32.38 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.