Neil Woodford has lost the backing of two big supporters after his move to block investors from accessing their cash earlier this week.
In a move that has rocked the fund management industry, Woodford opted to close the doors of his main fund - Woodford Equity Income - in order to give himself “time and space” to raise money to fund investor redemptions.
The investments he is offloading are either unquoted or unlisted shares, meaning they are illiquid and not easy to trade quickly, so therefore the fund has been closed to give Woodford some breathing space.
Such a move protects investors remaining in the fund, as it avoids a scenario of forced sales that would run the risk of the investments being sold for less than they are worth.
At this stage it is unclear how long the fund will be closed for, but its suspension will be reviewed at the end of June by the fund’s administrator.
Two of its biggest supporters, though, have thrown in the towel. St James’s Place, the wealth manager, has dropped Woodford as the manager of one of its internal funds, which had £3.5 billion in assets under management.
Separately, Omnis Investments Limited, an asset manager, has fired Woodford as manager of its £300 million Omnis Income & Growth fund.
Both these funds are completely separate funds from Woodford Equity Income.
In addition, online broker Hargreaves Lansdown, which had been a supporter of Mr Woodford's fund, earlier this week dropped Woodford Equity Income from its Wealth 50 list of favourite funds, as well as suspending platforms fees for those invested on the HL platform.
Emma Wall, head of investment analysis at Hargreaves Lansdown, comments: “We have taken the decision to waive the platform fee on the Woodford Equity Income fund while dealing is suspended, effective immediately.
"We do not think it is fair to charge our clients a fee while they cannot trade in the fund. This is a frustrating and difficult time for clients and we are doing what we can to support them.
"We have been in communication with Woodford Investment Management to explain why we think this is the right thing to do and have put pressure on them to do the same.”
As well as losing key backers, Woodford has received criticism from Nick Morgan MP, chair of the Treasury Committee. She called on Woodford to waive the fund’s fees while it is suspended, but such a move has not been forthcoming.
Ms Morgan says: “Investors in the Woodford fund have been locked out of accessing their cash. Yet it has been reported that Mr Woodford is taking in nearly £100,000 in management fees a day.
“The suspension of trading has provided Mr Woodford with some breathing room to fix his fund; he should afford his investors the same space and waive the fund’s fees while the fund is suspended.”
In addition, the Financial Conduct Authority (FCA) is closely watching developments. It said in a statement: “We expect all firms involved to uphold their obligations to act in the best interests of all investors and to ensure the fund's assets are sold in an orderly manner.
"A suspension should last no longer than necessary to allow the fund to build up sufficient liquidity to meet redemptions again.”
Ms Morgan adds: “The FCA has rightly said that it is closely watching the fund. The Treasury Committee will no doubt raise this troubling episode, and what lessons can be learnt, when we take evidence from the FCA and Bank of England.”
Separately, speaking in Tokyo the Bank of England governor Mark Carney critisized open-ended investment funds.
Carney said: “Over half of investment funds have a structural mismatch between the frequency with which they offer redemptions and the time it would take them to liquidate their assets.
“Under stress they may need to fire sell assets, magnifying market adjustments and triggering further redemptions, a vicious feedback loop that can ultimately disrupt market functioning.”
While Carney did not specifically mention Neil Woodford or his funds, the decision to suspend his income fund came as a result of the liquidity problems Carney identified.
The Woodford Equity Income fund held around 10% in unlisted or unquoted businesses, but for a UK equity income fund this is a high amount and indeed proved too big a position to unwind without suspending the fund.
This article first appeared on our sister website Money Observer
I have held funds managed by Neil Woodford since 1997. They vastly and consistently outperformed the market making me 7 times the initial investment. Like many others I moved some of our funds to his new company when he set it up. At first it did well.
Unlike others he did publish his holdings so anyone who had the wit to look at their own holdings of his funds would have seen the proportion of illiquid stocks growing and the decline in performance from late 2017. I sold out then and have no losses.
The moral of this tale is to monitor your investments. The prattle of "advisers" is usually meaningless. Act when performance drops.