fund

Hargreaves Lansdown boss attacks Neil Woodford over frozen fund


The billionaire founder of the UK’s largest retail share dealing platform has attacked the beleaguered fund manager Neil Woodford for appearing not to be “truthful” about the performance of his frozen investment fund.

Peter Hargreaves – who with Stephen Lansdown founded the Hargreaves Lansdown share-dealing service for private investors in 1981 – added that the firm’s clients had been “stuffed into this horrible Woodford fund”.

The FTSE 100 company has come under fire for using its Wealth 50 list of recommended funds to promote Woodford’s Equity Income fund, which blocked investors from withdrawing their cash in June after becoming overwhelmed by customer withdrawals following a series of bad market bets.

Who is Neil Woodford?
He was once the UK’s biggest star fund manager, personally managing billions on behalf of pension funds and other investors at Invesco Perpetual. Then he decided to go it alone, and set up his own firm, Woodford Investment Management, in 2014.

Why has he shut his main fund?
The Woodford Equity Income Fund is Woodford’s flagship fund, and it is understood it has several hundred thousand investors. On 3 June he blocked investors from pulling their cash out of the fund after a dramatic jump in customer withdrawals after its performance went south following a series of bad stock market bets. The move gives him time to restructure the fund’s portfolio and sell off some assets in order to raise cash to meet the likely flood of redemptions when the fund does eventually reopen. On 1 July Woodford announced the fund will remain suspended until – at the earliest – the next review deadline of 29 July.

What does it mean for investors?
Put simply, they are blocked from accessing their investments until further notice. Existing investors will continue to own units in the fund, and they are being reassured that their money is safe. But there’s no certainty about what their investment will be worth. While the official position is that no exceptions are being made, if you are facing a real crisis and badly need your cash, it is probably worth giving the firm a try to see if they might budge for you.

When will the fund open again?
Most commentators seem to expect the fund to effectively stay shut for some time to come. Woodford will need to build up a big pot of cash ready to meet redemptions when the fund reopens – easily several hundred million pounds. He has reportedly so far raised something in excess of £300m.

Hargreaves, 72, told the Sunday Times: “It’s annoyed the hell out of me that it would appear he [Woodford] has not been truthful with Hargreaves Lansdown. But it’s also annoyed me that they [Hargreaves Lansdown] let it go on so long”.

Hargreaves Lansdown has previously said it was aware of the fund’s underperformance but kept it on its recommended Wealth 50 list in the hope it would bounce back. Woodford became one of the UK’s most feted fund managers after his initially contrarian bets against technology and banking stocks paid off following the dotcom crash and the banking crisis.

Hargreaves – who stepped down as chief executive of the company he founded in 2010, and remained on the board until 2015 – has also been criticised over the affair after he banked a £64m dividend from his 32% stake in the company in August. His total stake is worth just over £3bn.

Peter Hargreaves.



Peter Hargreaves. Photograph: Bloomberg/Bloomberg via Getty Images

He told the Sunday Times: “The clients have been stuffed in this horrible Woodford fund. I’ve drawn this big dividend. Nothing to do with me and I’ve been very successful. What do they want me to do? Give the dividend back to the unit holders?”

In a June letter addressed to Nicky Morgan, the then chairwoman of parliament’s Treasury select committee, the Hargreaves Lansdown chief executive, Chris Hill, said the platform conducts “extremely rigorous” checks on funds before including them in its Wealth 50 list, including analysis of fund manager performance and “face to face meetings”.

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.”

Rupert Neate


Photograph: Jenny Goodall/Rex Features

However, the note to Morgan also stated that Woodford Investment Management had failed to follow through on a promise to inform Hargreaves Lansdown if more than 10% of the Equity Income fund was ever invested in unquoted companies.

Hill wrote: “We insisted that they abide by … guidelines not to breach the 10% level and to inform us immediately if they did, to which they also agreed. We have subsequently, on 18th June 2019 in FCA chair Andrew Bailey’s response to the Treasury select committee, found out that Woodford twice breached this limit in February and March 2018. They did not inform us of this on either occasion”.

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Woodford has said that the agreement was to disclose “month-end breaches only”.

Last month, Hargreaves Lansdown said it will lose more than £2m in revenues after waiving fees for nearly 300,000 customers locked into Woodford’s suspended flagship fund.

The gating of the fund has left £1.6bn of Hargreaves’ client investments trapped for months, and withdrawals are likely to remain in place until at least December.

Hargreaves Lansdown and Woodford Investment Management declined to comment.



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