Woodford’s money merry-go-round: As his empire spins in turmoil why WAS the fallen fund giant allowed to invest in firms run by his circle of associates?
- Woodford built up large stakes in small companies run by people who also sit on the board of one of his three funds as ‘independent’ directors
- He also had close ties with a handful of City firms that have advised him
- Industry experts say the findings indicate Woodford’s funds were a ‘timebomb’
‘Timebomb’: Neil Woodford’s linked interests have been heavily criticised
Beleaguered fund manager Neil Woodford faced questions last night over whether potential conflicts of interest and longstanding personal ties across his now crumbling empire contributed to the crisis that has engulfed thousands of savers.
Analysis by The Mail on Sunday found that a number of the stock picks that Woodford made can be linked to individuals from the fund manager’s close circle of associates.
In some cases, Woodford built up large stakes in small companies run by people who also sit on the board of one of his three funds as ‘independent’ directors.
He was also found to have close ties with a handful of City firms that have repeatedly advised him or brokered deals that involved his funds.
City investment figures said the findings indicated Woodford’s funds were a ‘timebomb’ and urged the Financial Conduct Authority to set tighter rules for fund managers who look after the Isas and pensions of millions of savers.
The criticisms will heap more pressure on 59-year-old Woodford after he barred withdrawals from his flagship £3.7 billion Equity Income fund 14 days ago.
Thousands of private investors – many believing that Woodford had the Midas touch after a successful 26-year career at asset manager Invesco – have been blocked from accessing their nest eggs while Woodford continues to collect £100,000 a day in management fees.
The crisis has been attributed in part to the fund manager investing too heavily in unlisted companies or shares that are extremely difficult to trade. This has meant that Woodford, who left Invesco five years ago to set up his own funds, has struggled to raise enough cash as investors have tried to withdraw their savings following a run of poor performance.
Woodford’s circle of associates
An independent director of Woodford’s Patient Capital Trust. But another Woodford fund – now blocked to investors – owns a fifth of the shares in Circassia, where Harris is chief executive.
The chairwoman of Patient Capital and of Mercia Technologies, in which Patient Capital and Woodford’s Equity Income fund have stakes.
Two Woodford funds hold shares in battery firm Nexeon, run by Patient Capital independent board member Scott Brown. Harris, Brown and Searle also have links with Woodfordbacked Imperial Innovations.
One controversial investment in a smaller firm is Woodford Equity Income fund’s 20 per cent holding in Circassia Pharmaceuticals. The chief executive of Circassia is Steve Harris, who is also an independent director at Woodford’s Patient Capital trust fund.
Circassia was floated in 2014 with a share price of £3.10, valuing the pharmaceutical business at £581 million. But the share price has since tanked 94 per cent to less than 18p.
Other investors linked to Woodford – including Omnis Investments and St James’s Place, both of which were advised by Woodford before dumping him earlier this month – hold stakes in Circassia too.
The days when fund directors just turned up for a nice lunch and collected their fee are long gone… They now have serious roles to fulfil and it is important that they are free from conflicting interests
Peter Sleep, senior portfolio manager at stockbroker Seven Investment Management
Two of Woodford’s funds also hold shares in Nexeon, which is run by another of the trust’s independent non-executive board members, Scott Brown. The chairwoman of the trust, Susan Searle, is also chairwoman at Mercia Technologies – in which both Patient Capital and Woodford’s Equity Income fund have stakes.
Gina Miller, co-founder of investment firm SCM Direct and a campaigner for transparency and accountability, said: ‘This whole Woodford debacle was a timebomb – an accident waiting to happen. He hasn’t broken the law and that says there needs to be a review of the regulations.
‘The Financial Conduct Authority has failed. It has not been protecting investors enough from conflicts of interest or other issues that are now ringing alarm bells.’
Peter Sleep, senior portfolio manager at stockbroker Seven Investment Management, said: ‘The days when fund directors just turned up for a nice lunch and collected their fee are long gone.
‘They now have many serious roles to fulfil and it is important that they are free from conflicting interests that might compromise their ability to do this.’
A representative for Woodford said last night: ‘Woodford has robust procedures in place to mitigate any potential conflicts – the most crucial one being that the board has no involvement in the investment process or day-to-day investment decisions, which are made solely by Neil and his team.’
The spokesman said the company had appointed a number of directors with ‘extensive experience’ in small companies with the potential to grow and that could include ‘in companies in which the directors were involved’.
Woodford also has close ties to stockbrokers Numis and Cenkos. Numis acts as an adviser to IP Group, Burford Capital, Countryside Properties, Raven Property, and BCA Marketplace – all of which were in the top 14 holdings of the Woodford Equity Income fund when it was shuttered.
City sources said Woodford enjoyed a close relationship with Paul Hodges, an analyst at stockbroker Cenkos, for 25 years. Woodford has backed Hodges’ investment ideas and flotations led by Cenkos, including the listing of the AA. The roadside recovery group’s shares are now languishing at 51p – 80 per cent of the £2.50 price at which they came to market.