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Why embattled fund manager Neil Woodford should waive the fees on his suspended fund

Getting the fund into a position where dealings can be reopened is going to be costly but the City stockpicker needs to consider the bigger picture

James Moore
Chief Business Commentator
Tuesday 11 June 2019 10:31 BST
Star asset manager needs to restore his reputation after taking a body blow
Star asset manager needs to restore his reputation after taking a body blow (Rex)

Should star asset manager Neil Woodford waive the charges levied by his suspended equity income fund? The pressure on him to do so is mounting. His big supporter, Hargreaves Lansdown, has already given up the administration fees it charges to clients who invested in the fund.

Nicky Morgan, chair of the House of Commons Treasury Committee, called for “a gesture” in the wake of reports that the fund is generating as much as £100,000 a day. Andrew Bailey, chief executive of the Financial Conduct Authority, joined the party this morning in telling the BBC that the stockpicker should “consider his position”.

One of the big problems with the fund is, of course, that it has within it a lot of illiquid securities which are hard to sell. To get it into a position where dealings in it can be reopened, and people can get their money out without the need for fire sales that would only add to their woes, is going to take a lot of time and effort on the part of Woodford and his staff. That inevitably generates cost.

This was also referenced by Bailey in his interview. He was no doubt motivated in part by the regulator’s concern for the stability of the business. The last thing he wants to do is to turn the current drama into a crisis, which is what would happen were Woodford to find himself in a position of being unable to cover those costs.

Still, Bailey was correct about Woodford needing to think hard about his position vis a vis the fees. It should be said at this point that funds run by stockpickers inevitably sometimes underperform in the market. In fact most of them do. Woodford’s has done particularly badly, but that does happen from time to time.

It isn’t pretty but investors should have been aware of the risk. If they want to reduce it when they can get out, they should consider index tracking funds, which are cheaper and mostly do better than the actively managed funds specialised in by the likes of Woodford after costs have been taken into account. Of course, they still sometimes lose their investors’ money.

Back in the day, after the markets had endured a particularly bad run, Legal & General, a big tracker manager, responded by waiving the fees charged to investors in its All Share Index fund.

The company was in no way responsible for the rout, but the letter it sent out was still a smart public relations move, and the hit it took was worth it for the message it sent out to savers, of which I was (and am) one. The letter effectively said: we share your pain and we want you to know that. Stick with us and things will pick up.

Such a gesture isn’t so easy for Woodford, who runs a much smaller business. But his reputation as a stockpicker has taken a body blow. The road to recovery for him and his operation is going to be a bumpy one. Waiving his fees, even if only temporarily, would make it smoother.

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