Woodford fired from flagship fund as investors count losses and the shouting starts

Administrator says that the fund, suspended in June, will be closed and its assets sold off on behalf of furious investors 

James Moore
Chief Business Commentator
Tuesday 15 October 2019 11:15 BST
Neil Woodford: The one time star manager has been fired by the administrators of his flagship fund
Neil Woodford: The one time star manager has been fired by the administrators of his flagship fund (Jonathan Atkins)

From a supernova to a black hole.

The Neil Woodford fund scandal reached its inevitable conclusion today with the announcement of his firing as manager of the closed Equity Income fund, Woodford Investment Management's flagship, which will now be wound up.

Link Fund Solutions, which has been administering the thing, has appointed BlackRock to sell off its assets so that its unhappy investors can get at least some of their cash back, at some point in the new year.

Their losses will be heavy and made worse by the fact that the market will see the fund coming and act accordingly. The forced seller always gets burned.

“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,” said Woodford, alluding to that.

However, his investors could be forgiven for asking whether he’s the right man to be commenting on what’s in their interests.

Reopening the fund, which has been suspended since June, was, in reality, always a pipe dream.

Had it happened, the inevitable result would have been a fresh stampede for the exit, continuing on from the one that forced the suspension of dealings in the first place.

There was more bad news for the investment industry’s one time wunderkind from Woodford Patient Capital, the investment trust he stewards. The fund is a big investor in it, and the news that BlackRock will be selling its holdings immediately created a stock overhang and caused the trust’s shares to plummet.

Woodford Patient is currently “reviewing its investment management arrangements” which means he may well lose control of that in due course too.

It’s basically all over bar the shouting. But there will be an awful lot of shouting.

Woodford came to be treated as a rock star among the investment firmament, the man with the Midas touch. If you'd invested £10,000 with him at the start of his career at fund manager Perpetual it would have been worth £250,000 by the end.

Initially his new venture produced similarly impressive results until it was derailed by a series of bad investments that had his backers running for the fire escape.

Woodford didn’t help his cause by refusing to waive the fees he charged while the fund was suspended. Yes, managing it incurred cost. But it was just a terrible look for a multi millionaire to be imposing charges on less wealthy people who lost a lot of money through staking their faith in him.

Some of his public comments also reeked of hubris.

The FCA is now investigating the events leading up to the suspension. The Treasury Committee could have a go too. Woodford’s name will remain in the headlines for all the wrong reasons for some time to come. The brokers who backed him may find themselves on a sticky wicket too.

But before the investigations draw their conclusions, there is one clear takeaway from this affair. It is that people should always remember the warning the Financial Conduct Authority demands is included at the bottom of any financial promotion: Past performance is not a reliable indicator of future results. Even with a fund manager as distinguished as Woodford once was.

Perhaps it needs to be made bigger?

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