A high profile UK stock picker has shocked thousands of investors by announcing that they cannot withdraw their money from his investment fund until the end of the month. The equity income fund, run by Neil Woodford and his Woodford Investment Management group (WIM), made the extraordinary announcement yesterday.
The move means that the LF Woodford Equity Income Fund will deny any withdrawals from the fund for 28 days, in a bid to cope with the overwhelming amount of withdrawal requests. It is believed that a redemption request from Kent county council for £263 million was the tipping point for the decision.
Woodford’s funds have been in the news on multiple occasions in the past two years, with growing investor unhappiness with the performance of the Equity Income Fund and investments in medium sized UK businesses in an uncertain Brexit-cautious economy. At its peak, the fund was valued at £10 billion in 2017, but now – following exodus – is worth £3.7 billion. The equity income fund lost a reported £187 million in May to withdrawals, resulting in a £600 million fund valuation drop in the past month.
The equity income fund has since been suspended. Investment service Hargreaves Lansdown has removed it from its Wealth 50 list of recommended funds, as well as removing the Woodford Income Focus Fund. The move hasn’t stopped Hargreaves taking a hit to its share price however, having lost 4.58% yesterday and 7.94% since last Thursday.
The third fund operated by WIM, the Woodford Patient Capital Trust, is currently on the FTSE 250. At Tuesday’s low point it lost 20% in value but managed to recoup some of its losses to end 7.2% down for the session – a drop to 71p a share.
Who is Neil Woodford?
Neil Woodford is a stock picker, who formerly worked for Invesco. Woodford had a reputation for taking risks with his picks, but the gambles usually paid off and he was quite successful in his career. Upon leaving Invesco, Woodford took a lot of clients with him to his new venture: Woodford Investment Management.
Woodford has previously been praised for avoiding buying into expensive tech companies during the Dot Com Bubble at the turn of the millennium, as well as avoiding heavy exposure to the banks in the run up to the Financial Crisis 08/09. No good run lasts forever though, and the Brexit situation – amongst other factors – has tripped the business up, resulting in a lot of embarrassing news coverage that is severely damaging to the reputation of both Woodford and his firm.
How did things go wrong?
Across Woodford’s funds there were many mid-sized UK businesses backed with investments, such as PurpleBricks, the AA, HostelWorld, Barratt Developments, and Stobart Group – to name a few. The latest risk investment that has worried investors in Woodford’s funds is the Kier Group, who lost 40% share value after issuing a profit warning last week.
The problem, say industry experts, is that Woodford was too keen on illiquid stakes and, with a run of bad gambles, the liquid stakes are running dry and the illiquid are left. This ties in with the 28-day ban on withdrawals; it is giving the firm a window of opportunity to sell off the difficult, illiquid shares. Companies still listed on the Woodford website as part of the funds include Therevance Biopharma, Benevolent AI, Autolus, and Oxford Nanopore.
Yesterday the Woodford Investment Management homepage had the following risk warning:
The fund may invest in unquoted securities, which may be less liquid and more difficult to value, because they are generally not publicly traded – the lack of an open market may also make it more difficult to establish fair value
This has since been amended to read as follows:
The LF Woodford Equity Income Fund and the Woodford Patient Capital Trust may invest in unquoted securities, which may be less liquid and more difficult to value, because they are generally not publicly traded – the lack of an open market may also make it more difficult to establish fair value
What has Woodford said about the decision?
In an official statement issued late on Tuesday, Woodford Investment Management said:
“After consideration of all relevant circumstances relating to the Fund’s assets, we have, in conjunction with Woodford Investment Management Limited (“Woodford”), the appointed Investment Manager, come to the conclusion it is in the best interests of all investors in the Fund to suspend the issue, cancellation, sale, redemption and transfer of shares in the Fund.”
The statement went on to say:
“During the period that share dealing is suspended no requests to redeem, purchase or transfer shares in the Funds will be accepted. When LFS elects to resume dealing in the shares of the Fund, we will write to all investors informing them of this fact.”
The Financial Conduct Authority has confirmed that they are monitoring the situation.