One of Neil Woodford’s biggest backers hit out at Britain’s best-known investment manager for blocking withdrawals from his flagship fund, as the fall-out spread across the UK’s financial community.
Kent County Council pension fund said it was continuing negotiations with Mr Woodford to try to extract its £263m investment, a day after the fund was frozen to investor withdrawals.
On Tuesday, the contagion was felt widely as the share prices of listed companies with deep links to the prominent fund manager fell.
A spokesman for Kent County Council told the Financial Times that it wanted its money back and demanded guarantees that would happen. In a separate statement, the council pension fund said: it was “disappointed that, as a major investor in the fund, we did not receive …prior notification”.
Kent had triggered the gating by asking to cash out following an FT report last week on the extent of the exodus from Woodford.
Mr Woodford buckled on Monday under the weight of a stampede out of his £3.7bn fund by blocking capital withdrawals, a damaging move for an open-ended fund that will now struggle to win back investor trust. Investors have no certainty about the length of the redemption freeze, with no guidance on timing provided by Woodford Investment Management or the Financial Conduct Authority.
“Woodford faces a Herculean task trying to climb out of this hole,” said Amin Rajan, chief executive of Create Research, a consultancy. “We are witnessing the last gasps of the star culture, as reputable investors jump ship.”
Hargreaves Lansdown, the fund supermarket which has funnelled close to £1.2bn to Mr Woodford, was the second biggest faller on the FTSE 100, closing 4.6 per cent lower; Woodford Patient Capital Trust, one of the UK’s largest investment trusts, tumbled nearly a fifth before closing 8.3 per cent lower; and Burford Capital, a litigation funder and the second-largest investment in the fund’s portfolio, fell nearly 3 per cent.
An investment fund platform operator, who asked not to be named, said “we have had dozens of clients, mainly financial advisers that are invested in Woodford on the phone all morning. They are all panicking.”
Ian Hunter, a professional investor and shareholder in WPCT, said Mr Woodford had taken “ridiculously large holdings in too many individual companies”, including Purplebricks and Provident Financial. “He needed a compliance department of the scale he had at Invesco but he had people around him who were scared of saying those stakes were too big.
“Taking a casino approach to massive risk creates the problems he is now facing,” Mr Hunter said.
The Financial Conduct Authority defended its role in the Woodford episode, arguing that the rules were working as they should, according to people familiar with the situation. The FCA held discussions with the fund as long as six weeks ago about the make-up of its investments, including the element of unlisted holdings, according to those people.
The UK regulator was irritated by Mr Woodford’s decision to list stakes in three companies on the Guernsey stock exchange, an unorthodox move that allowed the fund to keep its quota of “unquoted stocks” below a 10 per cent regulatory cap. The Guernsey listing was approved by the local regulator rather than the FCA and was compliant with European rules known as UCITS.
“If I were Andrew Bailey, I’d be wondering what my intervention tools are in this situation, because there really aren’t very many of them,” said a senior lawyer, referring to the FCA’s chief executive. “Technically, the fund is fully compliant.”
The FCA said it was in touch with the relevant parties to make sure actions undertaken were in the best interests of all the fund’s investors.
The Bank of England is alert to the possibility of wider contagion and systemic issues and has a watching brief on the matter, according to a person familiar with the situation.
Jonathan Reynolds, shadow City minister, said he was concerned by coverage of the crisis at the fund. “The priority has to be investor interests and whether the fund has been entirely clear on the nature of the product they have been selling and the possibility it could be gated,” he said.
“This also highlights the need for total transparency in commission arrangements where a particular fund is being heavily promoted.”
Additional reporting by Jim Pickard in London