As Woodford launches a new firm, savers are still waiting for answers


Disgraced fund manager Neil Woodford is still under investigation by the City watchdog – but that hasn’t stopped him setting up an investment firm in a bid to revive his career.

Woodford’s original investment empire collapsed in 2019 and since then, savers who entrusted him with their money have lost at least £1billion.

That is on top of any losses they suffered during his years of under-performance in the run-up to the 2019 implosion.

He's back: Neil Woodford’s original investment empire collapsed in 2019 and since then, savers who entrusted him with their money have lost at least £1bn

He’s back: Neil Woodford’s original investment empire collapsed in 2019 and since then, savers who entrusted him with their money have lost at least £1bn

In a tearful interview with the Sunday Telegraph this weekend, Woodford, 60, said he was ‘sorry for what I did wrong’.

But as he plots his comeback, serious questions over the scandal remain.

DID WOODFORD MISLEAD INVESTORS?

When he launched his original investment empire, Woodford Investment Management, in 2014 after years of success at Invesco, he claimed to be building it on transparency.

It was true that he showed all the fund’s holdings on his website – a rarity in the industry – and outlined its charges in a way which was easier to understand than many of his peers.

But despite this, many investors claim they didn’t get what they were expecting, which was a mainstream equity income fund, investing in safe, rather dull companies that paid reliable dividends.

The fund was heavily weighted towards smaller stocks, which can be hard to sell or less ‘liquid’. Woodford had previously been known for spotting undervalued stocks in the FTSE 100 or FTSE 250 indexes, which tend to be far easier to offload at will. 

And while the fund’s fact sheet said it invested ‘primarily in UK listed companies’, Woodford was dedicating increasing amounts of investors’ money to riskier, unquoted companies.

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Although the evidence of this drift was there on Woodford’s website for anyone to check, it would be a near-impossible task for ordinary savers to analyse every single company the portfolio on a regular basis.

In his interview this weekend, Woodford denied claims that his investment approach changed, saying the dynamic of the stock market had simply shifted and what he thought were undervalued shares just happened to be at the smaller end of the market.

In an interview on Sunday, Woodford said he was forced to sell his main home – a £30m farm with stables near Tetbury in the Cotswolds

In an interview on Sunday, Woodford said he was forced to sell his main home – a £30m farm with stables near Tetbury in the Cotswolds

WAS HE HOLDING TOO MANY ILLIQUID STOCKS?

The proportion of hard-to-sell or ‘illiquid’ stocks in the Woodford Equity Income Fund was one of the key reasons it collapsed, as he was unable to sell the stocks fast enough to return money to investors who wanted to leave.

There are City rules designed to protect investors from this. These state that a maximum of 10 per cent of a fund should be invested in unlisted stocks, which are harder to sell because they do not trade on a stock exchange.

Woodford repeatedly breached this rule. Hargreaves Lansdown, the investment platform which had been one of his biggest cheerleaders, was alarmed enough to step in behind closed doors and urge him to address the problems. 

He eventually agreed to stop investing in unlisted stocks in May 2019, but by that time it was too late.

WHAT HAPPENED IN GUERNSEY?

In an effort to get around the 10 per cent rule, Woodford hit upon an unusual and highly controversial strategy. 

To reduce the proportion of unlisted firms he held, he decided to list his stakes in some privately owned companies on the Guernsey stock market.

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This was a maverick move – usually all a company’s shares are listed on an exchange, not just one investor’s portion.

Directors at the Guernsey exchange claimed they tried to get in touch with the Financial Conduct Authority (FCA) to check whether Woodford’s move was allowed – and later hit out at the watchdog for failing to respond. 

As it turned out, barely any of the shares were traded – implying that listing them had made them no more liquid.

Andrew Bailey, then the boss of the FCA and now governor of the Bank of England, said in 2019 that Woodford may have been ‘following the letter, but not the spirit, of the rules’.

While Woodford is vowing to do things differently with his new firm, one thing remains the same - his business partner and right-hand man Craig Newman (pictured)

While Woodford is vowing to do things differently with his new firm, one thing remains the same – his business partner and right-hand man Craig Newman (pictured)

SHOULD HE HAVE TRANSFERRED ASSETS BETWEEN FUNDS?

In another effort to improve the liquidity of his Equity Income Fund, he sold some of its unlisted assets to another of his investment vehicles, the Woodford Patient Capital Trust – a separate fund which is listed on the stock market and is better placed to own illiquid stocks due to its structure. In return, the doomed Equity Income Fund was handed shares in the trust.

But the Equity Income Fund paid a rich price for those shares, raising eyebrows around the City. Instead of buying them at the prevailing market value, it bought them for the underlying value of their assets, which was 15 per cent higher.

Equity Income Fund investors felt short-changed by the deal.

WHAT IS CRAIG NEWMAN’S ROLE?

While Woodford is vowing to do things differently with his new firm, one thing remains the same – his business partner and right-hand man Craig Newman (below).

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Newman, 50, was chief executive of Woodford Investment Management. The two worked together at Invesco, where Newman was the sales director – though he left amid rumours that he was he was facing disciplinary proceedings for allegedly taking sales and client data. A Woodford spokesman denied there had been any wrongdoing.

Newman is listed as a director of the new firm, WCM Partners.

HOW MUCH DID WOODFORD MAKE?

In his interview on Sunday, Woodford said he was forced to sell his main home – a £30million farm with stables near Tetbury in the Cotswolds. But few savers who lost their nest-eggs will have much sympathy. 

During the six years which Woodford ran his firm, he and Newman pulled more than £111million out of the business in dividends and profits.

And to add insult to injury, the pair insisted on continuing to charge fees even as investors’ money was locked in the fund and was rapidly slipping away.

From the time the fund was suspended until Woodford was fired, helpless investors forked out around £8million in fees.

In his interview, Woodford argued that he hadn’t been paid since May 2019, and all of these fees had gone towards staff costs and the running of the business.

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