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City watchdog calls on Neil Woodford to waive £100,000-a-day management fees on suspended fund

Despite poor performance last year, investment manager and his business partner Craig Newman took out £36.5m

Ben Chapman
Tuesday 11 June 2019 14:20 BST
Woodford said he had suspended the fund ‘to protect investors’ interests’
Woodford said he had suspended the fund ‘to protect investors’ interests’ (PA)

The City watchdog has called on under-fire investment star Neil Woodford to waive his £100,000-per-day management fees after he stopped customers withdrawing money from his flagship fund.

Andrew Bailey, chief executive of the Financial Conduct Authority (FCA), said Mr Woodford should “consider his position” on charging fees for the suspended fund. Despite a dire performance last year, the City heavyweight and his business partner Craig Newman took out £36.5m in dividends between them via a company called Woodford Capital.

Nicky Morgan, MP and chair of the House of Commons Treasury Committee, urged Mr Woodford’s investment company to waive the fees on its equity income fund, which blocked customer withdrawals last week after investors took out £560m in a month. Mr Woodford said he had suspended the fund “to protect investors’ interests” by preventing a fire sale of assets.

The fund once held more than £10bn but is now worth less than £4bn after large investment losses and outflows of cash.

Mr Bailey told BBC Radio 4’s Today programme: “I agree with what Nicky Morgan said – I think he should consider very seriously, I think she used the word ‘gesture’, use what word you like, he should consider his position.

“However, from our point of view, we need him to manage these assets more than ever because his job now is to get this fund back into a position where there can be orderly trading. So he has his work cut out now.”

The FCA demanded answers from Mr Woodford last week over his decision to invest in unlisted companies based in Guernsey.

Unlisted stocks are harder to sell, which means fund managers are likely to have to accept large discounts if they need to offload them quickly when investors want to withdraw money from the fund.

On Tuesday, the Bank of England’s deputy governor, Ben Broadbent, told MPs investment managers are right to block investors from withdrawing cash in such scenarios.

“To be clear, suspensions are allowed,” he told MPs on the Treasury Select Committee.

“Fundamentally, if you have got a fund whose assets are less liquid than their liabilities, there will be episodes when that’s probably the right thing to do.

“I don’t think we should see this as an adherent problem or something we should get rid of.”

He added there could be a wider UK financial stability risk if funds were forced to sell off investments quickly at values below their market price.

“That’s precisely what suspensions are designed to prevent,” he added.

On the Woodford fund suspension, he said: “There are no rules broken, so far as I understand it.”

The FCA has also faced questions over whether it should have stepped in more quickly.

Ms Morgan also said on Monday she had written to Mr Bailey to ask for more information on the suspension and its supervisory contact with the Woodford fund.

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