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Neil Woodford ‘extremely sorry’ for suspending investors from withdrawing money

City heavyweight apologises after suspending withdrawals

Ben Chapman
Wednesday 05 June 2019 09:59 BST
Top stockpicker Neil Woodford apologises for suspending fund

Star fund manager Neil Woodford told investors he was “extremely sorry” after he stopped them withdrawing their cash from his £3.7bn fund.

The City heavyweight posted a sombre video on YouTube in which he apologised and sought to reassure investors their money was safe after redemptions from his flagship fund hit £10m per day.

Rapid outflows meant the fund had to sell assets at knockdown prices because buyers in the market knew about the difficulties he was facing, Mr Woodford said.

He insisted a strategy was in place to stabilise the fund, which had held more than £10bn of assets at its peak. The plan involves selling illiquid and unlisted shares, which are hard to sell quickly at a good price because there are fewer potential buyers.

In the three-minute clip Mr Woodford said he was “extremely sorry that we’ve had to take this decision”, and added: “When it is appropriate we will open the fund so that you can buy and sell as normal.

“As difficult a decision as this is, and clearly frustrating for you, our investors, we felt that this was necessary to protect your interests.

“The situation that we confronted was that we were seeing a lot of outflow in the portfolio. As a result of that increased level of redemptions, what we were seeing was the stock market in a way anticipating the fact that we would have to be sellers of stocks to meet those redemptions.

“We felt that the prices that we would have to achieve in order to meet those redemptions would be disadvantageous for our investors.”

Major investors in the fund were reportedly given no prior warning that they would be prevented from withdrawing their cash.

Woodford Investment Management put the suspension in place hours after Kent County Council attempted to withdraw £263m on Monday.

Mr Woodford said: “Fundamentally the strategy remains the same; investors’ money is preserved in the assets in which we invested and the portfolio continues to work for our investors.”

He said the suspension would buy the firm “time and space” to execute a plan which “is about reducing the fund’s exposure to illiquids and unquoteds down to zero”.

That capital will be redeployed in “more conventional” stocks on the FTSE 350 and FTSE 100, he explained. The episode marks a new nadir for a man feted in the City as someone who could consistently deliver big returns for large numbers of retail investors.

Mr Woodford has commanded multimillion-pound pay packages over the years, including the £37m he shared with his firm’s chief executive Craig Newman in January despite a dismal year.

Shares in Mr Woodford’s listed investment trust plunged on Tuesday after it emerged the flagship portfolio had been frozen.

Woodford Patient Capital Trust’s shares are down 9 per cent this week, having fallen as much as 21 per cent at one stage on Tuesday.

Shares of other stocks that count Mr Woodford’s fund among their biggest investors also fell heavily after the move, with construction giant Kier Group down 6 per cent on the FTSE 250.

And fund supermarket Hargreaves Lansdown saw shares drop 5 per cent on the FTSE 100 after it said it could no longer include the Woodford Equity Income Fund or Woodford Income Focus Fund on its “Wealth 50” list, which is used by thousands of customers to decide where to invest.

In the video Mr Woodford said the Focus Fund remained “open as normal” to buying and selling, and it had no exposure to the same illiquid and unquoted securities.

How has a star fund manager ended up in this position?

Long considered one of the UK’s best and most consistent stock pickers, Neil Woodford has had a bad run over the past couple of years. His strategy is a simple one and has remained the same over a three-decade career: investing for the long term in companies which he considers to be undervalued.

In the past he has been very good at this. But he has recently backed a number of firms whose shares have tanked, including construction and outsourcing firm Kier, which said last week that it would perform significantly worse than they told investors at the start of the year. Shares crashed 41 per cent.

Mr Woodford has also been criticised for investing in some illiquid and unlisted shares despite the fact investors in his fund can withdraw their cash at any time. As performance has soured and big clients like Kent County Council have sought to pull out their money, the fund has had to sell assets to meet payout requests.

Illiquid assets must be heavily discounted in order to sell them quickly, deepening the losses for Mr Woodford’s fund. He is now going to unwind those positions and focus exclusively on listed shares which are easy to buy and sell quickly.

The suspension buys him some time to do that but confidence in a man considered a City superstar has been severely dented. It remains to be seen how many more investors will want to pull out their cash when they have the chance to do so again.

Will they still put much stock in his previous history or will they seek to cut their recent losses and run? Even a reputation as stellar as Mr Woodford’s may not be enough to prevent a further exodus.

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