Investors offered Woodford compensation deal

After four long and traumatic years, investors that lost money in fallen ‘rock-star’ fund manager Neil Woodford’s Equity Income fund are being offered compensation to draw a line under the whole sorry saga.

 
Investors who lost money when the fund managed by the stockpicker collapsed are in line for compensation.

City regulator, the Financial Conduct Authority (FCA), said people who had money invested when the fund was suspended could receive a share of £235m in redress.

The payout could return around 77p in the pound to investors, and at first glance would seem to be a not unreasonable conclusion to an inglorious episode for UK investors; agreement to the offer will be subject to a vote.

Various other conditions will also need to be fulfilled, such as the sale of some assets.

FCA’s Therese Chambers said the proposal offered the best possible outcome for the 300,000 trapped investors who lost money.

Woodford was as close to a household name as is possible in the world of investing; after feathering many a nest with his stellar 25 year track record and £30bn under management at Invesco Perpetual. When he set up his own managed fund, he came with an impressive reputation, and a grateful and ambitious following.

Investors, ranging from ordinary people to pension funds, poured money into the Woodford Equity Income Fund, and at its peak, it managed more than £10bn.

However, with the fund making ever riskier bets to meet their expectations, investors became increasingly worried about the investments being made on their behalf, and many withdrew their money.

Kent County Council led the charge in trying to get its money back, and more than £500m was taken out in four weeks; in June 2019 the fund was frozen, and was later wound up.

Fund administrator, Link Fund Solutions, the authorised corporate director (ACD) of the fund, had a responsibility to ensure that the fund was being managed with appropriate levels of liquidity and risk, and that all investors were treated fairly.

FCA identified “critical mistakes and errors” made by Link in its duties; as a result, those who had money in the fund when it was suspended were left with a disproportionate share of assets that were less liquid, and difficult to use to repay investors who wanted to leave; four years on, some assets remain unsold.

The FCA and Link Group have agreed a pay-out of about £235m – less than an earlier statement, which suggested investors would get a share of £298m. Link plans to fund the compensation payment by selling its Fund Solutions business.

Investors will receive a letter now about the proposal, and should receive further information about the timetable of events in July; they will need to vote to approve the deal for payments to be made.

“It would be a surprise if Woodford investors didn’t approve the deal given how long this has dragged on for,” said Ryan Hughes, from investment platform AJ Bell.

“While it will take some time for this redress process to complete and for payments to be made, investors are one step closer to being able to finally put this whole sorry episode to bed.”

FCA is still investigating the events leading up to the fund’s collapse in what it described as a “complex” inquiry; there were also separate lawsuits on behalf of investors and Chris Hill, CEO of Bristolean investing behemoth, Hargreaves Lansdown, which promoted the fund pretty much until it hit the buffers, also stepped down in the face of a lawsuit from angry Woodford investors

Mr Woodford has said he was “very sorry for what I did wrong”, but has criticised the decision by Link to suspend the fund.