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The Financial Conduct Authority (FCA), the UK’s financial watchdog, has levied fines totaling nearly £46 million against former star fund manager Neil Woodford and his investment firm.
The action follows the 2019 collapse of the Woodford Equity Income Fund, which impacted approximately 300,000 investors who were unable to withdraw their funds amidst liquidity issues.
The FCA has provisionally fined Mr. Woodford almost £6 million and intends to prohibit him from holding senior management positions and managing funds for retail investors. Woodford Investment Management (WIM) faces a provisional fine of £40 million.
WIM has stated its “strong” disagreement with the FCA’s decision and plans to appeal, emphasizing that all FCA findings remain provisional at this stage.
Once celebrated as a leading figure in the investment world, Mr. Woodford was previously lauded for his success in generating wealth for middle-class investors and was often compared to Warren Buffett.
He established his reputation at Invesco Perpetual before founding his own company in 2013.
Mr. Woodford achieved near-household name recognition within the investment community, attracting significant investment into his flagship UK Equity Income Fund, which at its peak managed £10 billion.
The Woodford Equity Income Fund (WEIF), overseen by Mr. Woodford and WIM, was suspended in June 2019, leaving a predominantly retail investor base unable to access their capital.
The fund’s value declined from a high of £10.1 billion in May 2017 to £3.6 billion leading up to the suspension.
The FCA asserts that between July 2018 and June 2019, WIM and Mr. Woodford made “unreasonable and inappropriate investment decisions.”
The regulator alleges that they divested liquid assets, which could be readily sold, and instead acquired less liquid investments.
Consequently, at the time of suspension, only 8% of the fund’s investments could be liquidated within seven days, despite investors’ expectations of accessing their funds within four days.
The FCA contends that WIM and Mr. Woodford “did not react appropriately as the fund’s value declined, its liquidity worsened and more investors withdrew their money.”
This allegedly “disadvantaged investors who remained in the fund, compared to those who had withdrawn their investment before the fund was suspended.”
Steve Smart, joint executive director of enforcement and market oversight at the FCA, stated: “Being a leader in financial services comes with responsibilities as well as profile. Mr. Woodford simply doesn’t accept he had any role in managing the liquidity of the fund.”
He added, “The very minimum investors should expect is those managing their money make sensible decisions and take their senior role seriously.”
“Neither Neil Woodford nor Woodford Investment Management did so, putting at risk the money people had entrusted them with.”
In a statement, WIM argued that Mr. Woodford managed the WEIF in accordance with a liquidity framework established by Link Fund Solutions (LFS), the firm responsible for the fund’s liquidity management.
WIM asserts that this framework was “fully visible to the FCA, who had never objected to it.”
“There was never an indication that the FCA considered the management of the fund’s liquidity to be inappropriate or unreasonable,” WIM added.
WIM claims that the “true cause of the investor losses” was Link’s decision to liquidate the fund in October 2019, four months after its suspension.
The statement further noted that during the suspension period, Mr. Woodford had been “actively restructuring” the fund and developing a plan that “could have supported a managed reopening of the fund.”
In October 2023, the Waystone Group acquired the Irish and UK businesses of LFS. Waystone has been contacted for comment.
In April 2024, the FCA concluded that LFS had “failed to act with due skill, care and diligence” in its management of the WEIF.
Both WIM and Mr. Woodford expressed their “great sympathy for their investors who were impacted by the suspension, and who suffered financial loss when the Fund was liquidated.”
“However, they continue to believe that any loss suffered was avoidable and was a product of bad decisions made by Link after the suspension, which were overseen by the regulator.”
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