Neil Woodford’s £3.5bn equity income fund to be wound up

Julia Kollewe
Photograph: Reuters

Neil Woodford has been removed as investment manager of his £3.5bn flagship fund, which is to be wound up and the cash returned to investors, more than four months after it was suspended.

The former star fund manager had planned to reopen the Woodford Equity Income Fund, but the administrator, Link Fund Solutions (LFS), said on Tuesday it was in the best interests of investors for it to be wound up.

Woodford, who has been scrambling to rescue the fund, said he opposed the move. “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.”

In a letter to investors, LFS said their cash would be returned to them “at the earliest opportunity” although it was unable to say how much of their original investment would be salvaged. It will begin winding up the fund on 17 January, after giving investors three months’ notice as required. Woodford ceases to be the investment manager of the fund with immediate effect and his name will be removed from the fund.

The fund was suspended on 3 June after investors clamoured to withdraw their money after a series of bad stock market bets.

Woodford continued to charge the fund fees of about £65,000 a day, angering locked-out investors. He argued the fees were needed to pay wages and other costs while he shifted investments away from smaller, illiquid assets into larger publicly quoted companies. Many of his investments have performed badly, including the estate agent Purplebricks, finance firm Burford and doorstep lender Provident Financial.

LFS has waived its fee on the fund from the June suspension. BlackRock advisers and PJT Partners have been appointed to assist with the winding-up of the fund, and will charge fees. Its size has crashed to about a third of its peak of more than £10bn due to withdrawals and poor performance.

Catherine McKinnell, the interim chair of the Treasury committee, said: This appears to be the beginning of the end of a sorry state of affairs … There is still some time to go in this uncomfortable episode, which has raised important questions about the functioning of the funds industry. I’m sure the committee will want to examine what lessons can be learned from this saga.”

Ryan Hughes, the head of active portfolios at the investment platform AJ Bell, said: “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 of any proceeds from the sale, so will eat into the money investors get back.”

Investors will get their first return of cash by the end of January, when the more liquid assets have been sold. Any less liquid assets will be sold over time to limit losses, rather than on a “fire sale” basis.

The liquidity assessment carried out by the fund showed that a third of the fund was in assets that would take six months to a year, or more, to liquidate. While the portfolio has shifted a bit since then, it is unlikely to be a quick process, Hughes said.

In the letter to investors, LFS said: “While progress has been made in relation to repositioning the fund’s portfolio, this has unfortunately not been sufficient to allow reasonable certainty as to when the repositioning would be fully achieved and the fund could be 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. 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.”

Link will continue to publish the net asset value per share on a daily basis on its website. This will allow investors to see how much their investment is worth.