The administrators of the failed Woodford funds have told the 300,000 investors locked in since last June that they will receive an initial payout of just 46p to 57p per share – compared with the 100p price at launch five years ago.
The payout is the first distribution of investments liquidated by the administrators, Link Asset Solutions, since the suspension in June, with about £2.1bn being handed back to investors.
The money comes largely from sales of the “liquid”, easier-to-sell, part of the Woodford Equity Income fund, which was mostly shares in stock market quoted companies.
A second distribution of cash will follow after the sale of the “unquoted” investments in the fund – stakes in companies that Woodford invested in but were not listed on the stock market. But the administrators have already warned investors that these assets are proving more difficult to sell than expected.
Letters detailing each investor’s payout from the fund wind-up have been sent to investors. But many will be losing even more than the 40% losses implied by the distribution per share, as they may have bought after the 100p launch in June 2014, when the share price initially rose.
The implied 40% fall in the value of Woodford shares is in sharp contrast to the typical 31% gain in the average fund in the equity income sector over the past five years, and underline the calamitous failure in Woodford’s stock-picking.
The fund was once worth more than £10bn but suffered from a raft of poorly performing investments, including with estate agent Purplebricks, finance firm Burford and doorstep lender Provident Financial.
A rival fund superstar, Terry Smith, who has attracted billions into his Fundsmith Equity fund from small investors, last week made a stinging assessment of Woodford’s performance.
In a letter to his investors, he said: “The demise of Woodford Investment Management following the ‘gating’ of its main Woodford Equity Income fund was undoubtedly the main news in the industry last year.
“We have no desire to engage in a general commentary on this matter or to engage in an unseemly exercise in schadenfreude. We had long identified the problems which were brewing at Woodford but we kept our own counsel on the matter.
“The most obvious problem at Woodford was the lethal combination of a daily-dealing open-ended fund with significant holdings in unquoted companies and large percentage stakes in small quoted companies which had very limited liquidity.”
Other funds such as M&G’s £2.5bn property fund are also suspended because they are unable to easily sell their illiquid holdings, which include a number of retail parks and shopping centres. M&G said in a note to investors on Tuesday that the suspension of the fund, which began on 4 December, will continue.
The shadow chancellor, John McDonnell, criticised the Financial Conduct Authority for its failure to adequately supervise the Woodford fund.
“Many small investors who were simply seeking a secure investment for their pension have been hurt by the failure of Woodford,” McDonnell said.
“This isn’t just about the failure of Woodford. More importantly it’s about the failure of the regulatory system and in particular the FCA.
“I repeat my call for a fully independent inquiry into this debacle including the role of the FCA. Until we have the results of such an inquiry I have recommended to the chancellor that it is only proper that he delays the installation of Mr [Andrew] Bailey as the governor of the Bank of England.”