Woodford Breaches Unquoted Limit – Again


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The Woodford Equity Income fund has again breached the 10% limit of the proportion of the fund invested in unquoted assets.

Woodford Investment Management confirmed that shares in Benevolent AI and Industrial Heat had been delisted from the Guernsey stock exchange, “inadvertently” causing the fund to breach the limit. 

Woodford controversially listed his stakes in two firms earlier this year in a bid to avoid flouting the regulator’s rules. But the move was widely met with criticism because, although listed, the shares were solely owned by Woodford and therefore unlikely to trade.

In June, it emerged that the Guernsey exchange, TISE, had tried to contact the Financial Conduct Authority to raise concerns about the listing of the companies. A letter from the FCA to the Treasury Select Committee revealed that the fund had first breached the 10% limit back in February 2018. 

In May, the fund manager promised to reduce the fund’s exposure to unquoted and illiquid assets to zero over the coming months. But just weeks later the fund suspended trading after it was unable to meet redemption requests from investors. Earlier this week, the manager confirmed the fund would remain gated until at least December.

Woodford said the decision by Benevolent AI and Industrial Heat to delist had led to an “inadvertent passive breach” by the fund of the 10% limit. A spokesman said: “Action to bring the fund back into compliance is already underway.” Under FCA rules, the fund has six months to bring its exposure to unquoted assets back within the 10% limit.

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This is the latest setback for the beleaguered fund manager this week, after the Board of his Patient Capital investment trust confirmed it had been in talks with other fund groups and could potentially replace him as manager of the trust. Benevolent AI is the largest holding in the trust and Industrial Heat the fifth largest position.

Jason Hollands, managing director at Tilney Bestinvest, said: “With the fund already suspended and the process of trying to address its liquidity problems underway, this changes nothing for its investors. But this does act as yet a further reminder of the challenges that face this fund.”

Keith Speck, portfolio specialist at Morningstar Investment Management, said it was “not beyond the realms of probability” that the fund could be forced to close permanently

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