Woodford investors still waiting for £500m in cash one year on

3 June 2020

Many Woodford Equity Income fund investors have still not got their money back

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One year since the collapse of the Woodford Equity Income Fund, many frustrated investors are still waiting to see their money returned.

The Woodford Equity Income Fund was suspended on 3 June 2019 after a flood of requests to withdraw money amid concerns about the fund’s performance.

The decision sent shockwaves through the fund management industry, leaving investors facing huge losses.

In October, Link Fund Solutions, the fund’s administrator, decided to remove Woodford and liquidate the fund.

It has so far returned £2.3 billion from the fund, now called LF Equity Income.

But a year since the fund was suspended there is still £500 million stuck in illiquid assets. Link has not confirmed when investors will see this money returned.

Equity income funds like Woodford’s invest in companies which pay out dividends. They have been popular with investors in recent years but have been hit hard by the coronavirus pandemic, with many having to suspend dividend payments in order to stay afloat.

When will investors get their money back?

Most expert experts agree that the final amount of money trapped in illiquid assets will prove hard to sell due to the impact of the coronavirus pandemic on the global economy.

Ryan Hughes, head of active portfolios at investment platform AJ Bell, says: “There’s still £500 million of Equity Income fund assets stuck in illiquid companies and little indication of when they are likely to be sold.

“Given the current state of the global economy due to the impact of Covid-19, there is little immediate prospect of progress being made in selling these assets and a big question mark hangs around their valuations during current market conditions.”

Darius McDermott, managing director of FundCalibre, says: “The remaining assets are in illiquid companies and there is little indication of when they are likely to be sold, while a big question mark hangs over their valuations in current market conditions.

“We are estimating about another six months, but don’t really know, and how much is received is anyone’s guess. The recent sell-off will not have helped matters at all. It was very unfortunate timing, especially when illiquid assets need to be sold.”

Investor confidence

The demise of Woodford left the fund management industry reeling and is a stark reminder to investors that past performance is no guarantee of success.

The crisis has tarnished the image of active managers, damaging investor confidence in the process.

The Financial Conduct Authority has launched an investigation into the fund, but it has not yet revealed its results.

McDermott says: “The high-profile nature of the Woodford saga has been bad for the industry at a time when it has never been more important to encourage long-term savings.

“But it is important to remember that a lot of people also made a lot of money in his funds - over a couple of decades in total – before things went bad. This tends to get forgotten.”

Annabel Brodie-Smith, communications director of the Association of Investment Companies, says: “The Woodford saga made clear beyond all doubt the structural mismatch that results from open-ended funds holding unquoted, hard-to-sell assets.

“But beyond that, the suspension and subsequent failure of the Woodford Equity Income Fund justifiably damaged consumer confidence in the investment management industry.”

Is it the end of the star fund manager?

A number of star fund managers have risen to prominence over the past 15 years, but Woodford’s fall from grace highlights how success does not always last for ever.

Dzmitry Lipski, head of investment research at Interactive Investor (Moneywise’s parent company), says investors need to do their own research and only invest if they feel comfortable.

He says: “Woodford Equity Income is an extreme reminder that star fund managers can have a shelf life – especially if they do not stick to their knitting. If a fund manager has been doing something well for years, it is worth raising an eyebrow if you see a big change in style.

“Investors cannot control the risks a manager takes, but they can control their own risk within their own portfolio.”

Brodie-Smith says the Woodford saga has made the market much more sceptical of star fund managers.

She says: “Although it is still true that well-known managers with consistently strong track records are respected and followed by many investors, others have begun to perceive big name managers negatively. Management groups have been keen to promote co-managers and the team rather than one star name.”

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