Hargreaves Lansdown funds with exposure to Neil Woodford’s collapsed investment vehicle have bled a net £439m over the past four months, sparking fears that the liquidity crisis that engulfed the former stockpicker could spread to a new cohort of investors.
Hargreaves, the UK’s largest fund supermarket, operates an £8bn own-brand multimanager portfolio range that invests in the Woodford Equity Income fund, which is suspended due to problems stemming from its exposure to hard-to-sell assets.
A recent run of investor redemptions from the Hargreaves range is fuelling concern that as the multimanager reduces its position in other funds to pay the withdrawals, the Woodford fund will make up a larger proportion of the portfolios, endangering remaining investors.
Unlike investors who hold the fund directly, unit holders in the Hargreaves range are free to sell down their holdings. They have withdrawn a net £213m from Hargreaves’ £2.6bn Income and Growth Trust, its largest multi-manager fund and the one most exposed to the Woodford fund, since the end of May. That has shrunk its portfolio by a tenth, Morningstar estimates show.
Outflows from Income and Growth, which invests 11 per cent of its assets in the Woodford fund, were highest immediately after the suspension of the Woodford fund in June, averaging around £5m per day. Redemptions gathered pace again this week following the closure of Mr Woodford’s investment business. They totalled £2.3m on Thursday alone.
“This should be worrying to investors in the fund and Hargreaves Lansdown alike,” said James McManus, head of research at robo-adviser Nutmeg.
The Woodford fund is set to start returning cash to investors from January. But its exposure to illiquid assets means that unit holders such as Hargreaves face lengthy waits before being able to access all of their cash.
“If [Hargreaves investors] redeem their money, it cannot be funded by the Woodford position, meaning other assets must be sold and therefore the proportion of fund assets that Woodford accounts for will increase,” said Mr McManus.
He warned that in an extreme scenario Hargreaves may follow the Woodford fund and halt investors from accessing their money. This could happen if the Woodford fund weighting grows to more than 20 per cent of the portfolio, breaching a regulatory cap imposed on multi-manager funds’ holdings in other funds.
However, Mr McManus cautioned that this prospect is still some way off, estimating that to warrant action assets would need to fall “substantially” to about £1.5bn.
In addition, the heavy losses registered by the Woodford fund since its suspension has actually reduced its weight in the Hargreaves Income and Growth portfolio from 12.8 per cent to 11 per cent.
Hargreaves said that redemptions from its multi-manager range had been “in line with normal trading” since the suspension of the Woodford fund.
Mr McManus added that the Hargreaves fund’s mainly retail client base means it is less likely to be hit by a sudden large redemption — as was the case when Kent county council demanded £263m back from the Woodford fund. However, uncertainty around the extent of Woodford losses was likely to push more Hargreaves investors to rush for the exit, he said.
The Woodford fund’s woes have had a knock-on effect on Hargreaves Income and Growth, which has lost 5.4 per cent over one year. Despite this, Hargreaves continues to charge investors a 0.75 per cent management fee.
Hargreaves said that the Income and Growth fund had outperformed its comparative benchmark over all time horizons since it launched 17 years ago.