Woodford Equity Income: Too big to fail

This story goes from bad-to-worse and, with each revelation, the FCA looks more and more culpable.

The FCA has now launched an investigation into the Woodford fund suspension earlier this month and said in a statement that ‘where the FCA believes there are circumstances suggesting serious misconduct or non-compliance with the rules it may open an investigation’.

The regulator also detailed that Woodford Equity Income twice breached the 10% limit on unquoted stocks a fund can hold, in February and March 2018.

It doesn’t look like they were in too much a rush to open that investigation, does it.

Bailey added that the FCA met Link, authorised corporate director of the fund after ‘we became aware of press articles discussing certain securities listed on The International Stock Exchange in Guernsey’ in March this year.

Why does it need to read about it in the press, aren’t they supposed to be regulating not reading the paper?

‘aren’t they supposed to be regulating not reading the paper?’

The FCA said its ‘preliminary supervisory inquiries’ suggested Woodford Equity Income’s exposure to unquoted stocks, including those listed in Guernsey, stood at 20% in February.

This didn’t seem to unduly worry them, though

The events surrounding the Woodford Equity Income fund have underlined that just because securities are listed on an eligible market does not automatically mean that those specific securities are liquid,’ said Bailey.

‘A case can be made for reviewing the UCITS eligibility rules to take greater account of the depth of the market for the individual securities listed.’

This simply highlights their failings; where is the monitoring of funds holdings? Why weren’t questions being asked as to why the Guernsey listed assets were being held by the funds; especially as this is the same structuring trick that Arch Cru used to get around the rules?

Link, the ACD estimate that it will take between 20 and 360-plus days to sell one-third of the portfolio.

This then leads to another question, and one that no one has yet asked: if there is no market for these assets it follows that there is no meaningful price for them either.

‘Asleep at the wheel, it’s more like in a coma!’

In which case all the valuations that have been published, and therefore all the redemptions that have been made are based on a fictional number.

Serious questions now need to be asked, this is a fund that held billions, and it has been allowed to trade for months, who knows how many, in breach of the rules, and with prices that could have come straight out of Harry Potter.

We continue to have these scandals, which begs the question, what is the regulator doing?

Asleep at the wheel, it’s more like in a coma! Millions of pounds are spent on regulation, and all that ever happens is that some poor IFA gets a beating while the big beasts walk free.

Woodford, too big to fail.