Investors in Neil Woodford’s flagship investment fund are likely to remain trapped until early December, after the frozen fund extended its suspension to sell holdings and pay for customer withdrawals.
The administrator of the Woodford Equity Income Fund, Link Asset Services, said on Monday it would probably take a further four months before the £3.5bn vehicle was able to reopen. The fund was suspended on 3 June and Woodford stands to make about £8m in fees from investors if it stays shut until early December.
Investor fury at Woodford for continuing to take fees for managing the equity income fund while their money is locked up has added to the controversy surrounding the former star stock picker. Withdrawals and poor performance have reduced the size of the fund to about a third of its peak of more than £10bn.
In a statement to investors on his website, Woodford said: “I understand the frustration, inconvenience and anxiety the continued suspension of the fund will be causing you and I am extremely sorry for putting you in this situation.”
Woodford said the fees of about £65,000 a day were needed to pay wages and other costs while he shifts the fund into big publicly traded companies and away from unsuccessful listed investments such as estate agent Purplebricks and hard-to-sell privately held businesses. The fund entered a vicious spiral in May as investors unnerved by poor performance withdrew their money, culminating in Kent county council trying to cash in its entire £263m.
Link said: “The suspension of dealing is likely to last until early December while we implement the strategy to reposition the portfolio in order for the fund to be reopened at that time. In our view, this is a realistic amount of time for Woodford to complete a measured and orderly repositioning of the fund’s portfolio of assets.”
Meanwhile, it also emerged on Monday that Woodford had sold 1.75m shares in the listed fund that he manages, Woodford Patient Capital Trust, between 3 July and 8 July. At the average share price between those dates, the sale would have made Woodford just less than £1m, Reuters calculated.
Woodford, who told the fund’s board about the share sale on 27 July, said he needed the money for a tax bill and other commitments. The Patient Capital Trust is one of several managed by his company Woodford Investment Management.
He said he was forced to sell the shares after taking no income or dividends from Woodford Investment Management and blocking withdrawals from the equity income fund.
The explanation from Woodford’s company to the board for selling his Patient Capital Trust shares said: “Whilst a reluctant seller, between 3 and 8 July Mr Woodford sold 1.75m of his WPCT shares (around 60% of his holding). The sole reason that he did so was in order to meet personal financial obligations, including a tax liability.”
The board said that although it was not strictly required to disclose Woodford’s share sale, it had decided to publicly release the information. Woodford is left with 1.25m shares representing 0.14% of the Patient Capital Trust.
Neil Woodford was once the UK’s biggest star fund manager, personally managing a £25bn mountain of money on behalf of pension funds and other investors at Invesco Perpetual. When he decided to quit Invesco and go it alone in 2013 it was a huge shock for the fund management industry. Invesco shares slumped by 7% on the day he announced his departure.
At Invesco Woodford held control of huge stakes in some of the UK’s biggest firms, and his opinions mattered. His criticism of AstraZeneca chief executive David Brennan in the 2012 shareholder spring was widely regarded to have cost him his job, and his critique of BAE’s attempted £28bn merger with Airbus is acknowledged as one of the reasons the deal collapsed.
Woodford, who was widely referred to in the media as an investment “hero” and fund management “star”, had done exceedingly well over his quarter century there. A £1,000 investment placed when he started at the firm in 1988 would have risen to £23,000 by the time he left.
Woodford accidentally fell into fund management and hadn’t heard of the term until he rocked up in the City in the 1980s sleeping on his brother’s floor while looking for a job. He got his first break in insurance, before drifting into fund management. He had left school wanting to fly fighter jets but couldn’t pass the RAF’s aptitude test, and instead read economics and agricultural economics at the University of Exeter.
Feeling he had outgrown Invesco Perpetual, he set up his own firm Woodford Investment Management in 2014, on an industrial estate near Oxford. Within two weeks of launching, he had raised £1.6bn, a UK record, and it quickly grew to £16bn. In its first full year his flagship fund returned 16% and Woodford, a devotee of veteran US investor Warren Buffett, was dubbed the “Oracle of Oxford”.
Asked if he ever doubted his judgment, Woodford once said: “Daily. You must never, as a fund manager, stick your head in the sand saying ‘everybody go away, I’m right, I’m right, I’m right’. You’ve always got to expose yourself to criticism and the analysis that you may be wrong.”
Woodford went on to say that the secret of successful fund management was a balance of arrogance and humility. “You have to have a sufficiently strong arrogant gene to back your judgment, back your conviction. If you didn’t, you would end up with a portfolio that looks very much like the index. But, equally, you must have the humility to accept that you will get things wrong.”
A spokesperson for Woodford said: “Neil remains invested in WPCT and completely committed to the early-stage asset class and its long-term investment potential.”
Woodford Patient Capital Trust has an independent board whose job is to act in the interests of shareholders. The board also revealed on Monday it was considering replacing Woodford as the fund’s portfolio manager after receiving approaches from other potential candidates.
The board said: “Whilst the board remains confident in the portfolio manager’s commitment to WPCT and the current day-to-day management of the portfolio, the board intends to engage with a broader range of third-party managers in order to undertake a full assessment of all potential management options, which may or may not lead to a change in the company’s management arrangements.”
If the board replaces Woodford it will be a further blow to the reputation of the UK’s most famous fund manager and a former favourite with retail investors.
Shares in Woodford Patient Capital Trust, down almost 40% this year, fell 4.3% to 51p on Monday.
