THE NEIL WOODFORD STORY: WHERE DID IT ALL GO WRONG?
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Part 1
MATTHEW FEARGRIEVE discusses the failures of UK fund manager Neil Woodford, and the implosion of his multi-billion dollar investment funds.
In this, the first of a three-part blog, Matthew describes the background of management hubris and regulatory failings that laid the ground for the catastrophic outcome that lay ahead…
The Woodford Equity Income Fund (“WEIF”) was placed into liquidation in October 2019, after having suspended redemptions in June. The fund had been managed since its 2014 inception by Neil Woodford, an investment manager widely credited with “star” status following a successful career in the City. Fast-forward five years and Woodford’s funds are in wind-down, Woodford is removed as the manager, and his reputation is in ruins. This, the first part of a two-part blog, offers some reflections on this saga, and its implications for the future of UCITs for investors.
Seeds of disaster. WEIF was structured as a UCITs, a retail-friendly, regulated product that is open-ended and strictly required by the regulatory regime to permit investors daily liquidity. Note those two words: daily liquidity. They would come to haunt Woodford and his investors. The regulatory regime permits managers of UCITs to place long-only bets on liquid stocks. But Woodford’s investors were soon in for a surprise. Within two years’ of WEIF’s launch in 2014, it was apparent that the fund’s portfolio comprised substantial allocations to mid-cap stocks with high yields, small caps and significant positions in unlisted — illiquid — companies.
In its first two years of trading, WEIF enjoyed a fair market tailwind, delivering performance that bettered the FTSE All-Share index. By May 2017, WEIF’s AuM (assets under management) had a value in excess of £10 billion. Then, things started to change. Companies in which WEIF had questionably large positions issued well-publicized profit warnings. Investor confidence in Woodford’s investment decisions started to wane; and investors submitted requests to redeem their holdings in the fund, which they were perfectly entitled to do. As WEIF experienced outflows of investor money, and this turned the fund’s exposure to small caps and unlisted, illiquid stocks into a real problem. In order to meet redemption…
