After Woodford U-turn, now Hargreaves admits it was wrong to back Burford Capital


After Woodford U-turn, now online broker admits it was wrong to back Burford Capital: Hargreaves humiliated again

Troubled Hargreaves Lansdown has admitted it ‘may have been wrong’ to invest in Burford Capital.

In its second major embarrassment this summer, the online platform said it had sold its stake in Burford after an attack from hedge fund Muddy Waters sent the legal funding firm’s shares tumbling.

The admission came as Hargreaves reels from the scandal involving fund manager Neil Woodford, who blocked savers from withdrawing their cash from his flagship fund in June following a run of poor performance.

Bad move: Hargreaves is reeling from the scandal involving fund manager Neil Woodford

Bad move: Hargreaves is reeling from the scandal involving fund manager Neil Woodford

Hargreaves had backed the fund manager since he launched his own firm in 2014, channelling millions of pounds of its clients’ money into his funds, despite his dismal performance over the past two years.

It only removed Woodford from its so-called ‘best-buy list’ of recommended funds after he stunned savers by denying them access to cash held in his Equity Income fund in June.

Hargreaves Lansdown’s bosses declined to take their annual bonuses of up to £2m over the affair, and were forced to apologise to investors who had followed their recommendations.

And now, the online investment platform has held its hands up yet again and admitted two of its own funds had lost out investing in Burford, where Woodford was also a major investor.

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At the end of July, Hargreaves Lansdown held shares worth £29.6m in Burford.

Over the course of August, the value of this holding spiralled down to £13.8m as Burford was battered by Muddy Waters’ criticism of its accounting practices.

Woodford also took a knock from Burford’s fall, as he was one of the firm’s biggest backers.

Steve Clayton, the manager of the Hargreaves Lansdown Select funds, said: ‘We may have been wrong to have sold out, or we may have been wrong to have bought in the first place.

‘Either way, it’s disappointing to see what had been a big winner for all of the funds turn sour.’

Clayton said he did not know whether the accusations which Muddy Waters had levelled at Burford, detailing over-zealous accounting designed to mislead investors, were valid or not. He added: ‘Muddy Waters have not proven that Burford is a chimera, but questions have been raised that so far remain unanswered.’

As well as being an investment platform, Hargreaves Lansdown runs three funds under the Select brand where its own experts choose where to invest clients’ savings. Two of those funds – Select UK Income Shares and Select Global Growth Shares –locked in a loss as they ditched Burford this week.

The Select UK Income fund bought its stake in Burford when the shares were already relatively expensive. Burford’s sharp drop this month meant that it dragged the fund’s performance down by 1.25 per cent over the time it was in the portfolio. Hargreaves’ Select Global Growth fund launched this April, and immediately bought Burford shares.

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TRAPPED SAVERS PAYING £6M 

Neil Woodford has taken almost £6m in fees from savers trapped in his flagship fund.

The under-fire fund manager is still charging investors who have money in the troubled Woodford Equity Income Fund, despite denying them access to their cash since early June.

These fees amount to around £65,000 per day, meaning that by Tuesday he will have made £6m from his loyal customers. Since Woodford, 59, suspended the fund on June 3, its value has tumbled by 16 per cent from £3.7 billion to £3.1 billion – shaving down the amount savers will eventually be able to reclaim when the fund reopens. 

Part of the fall in value is because Woodford has had to sell some shares at lower prices, and other companies he holds in the fund have proved to be bad bets as they have been hit by profit warnings and accounting errors.

His Equity Income fund is expected to be closed until December, by which time he will have raked in around £12m in fees.

But several analysts believe the fund may never reopen, and Woodford will have to sell the shares and return the money to savers.

A spokesman for Woodford said the money is being used to cover the costs of running the fund.

But at this point the company was near its peak, so its poor summer cost that fund’s performance 1.5 per cent.

The third Select fund, Select UK Growth Shares, had held a stake in Burford for much longer so benefited from its stellar rise over the last decade. 

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Even though Burford’s stock has tumbled 53 per cent over the last month, it was still worth 80 per cent more than when the fund bought in. This meant that Burford boosted the fund’s performance by 3 per cent over the time it held the shares.



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