Woodford Equity Income wind up

Link Fund Solutions, the Authorised Corporate Director (ACD) of the Woodford Equity Income fund has today announced that the fund will not re-open in December, as previously announced, but instead will be wound up as soon as possible and the proceeds returned to investors.

The announcement at least confirms the end to a sorry saga but this will be of cold comfort to investors locked in the fund.

Link suspended the fund in June, after continuous redemptions from the fund, coupled with poor performance and a large number of unquoted assets, meant the fund ran out of available cash to pay back investors wanting to get their money out.

Initially the plan was for the fund to suspend dealing, reposition the portfolio to be more liquid and then re-open to investors - with ‘early December’ given as the date for the fund to re-open. However, Woodford has not managed to move out of his unlisted assets and into more liquid listed equities quickly enough to re-open the fund at the end of the year, meaning Link has determined it’s in the best interests of investors for the fund to close entirely.

Woodford’s name is also being removed from the fund, as the assets will be handed to alternative fund managers at BlackRock and Park Hill to sell off, meaning Neil Woodford will no longer be the fund manager – instead it will be re-named the ‘LF Equity Income Fund’.

The decision was taken by Link, rather than Woodford, and he disagrees with the decision. In a statement Neil Woodford said: “This was Link’s decision and one I cannot accept, nor believe is in the long-term interests of LF Woodford Equity Income Fund investors.”

The fund will begin to wind up in January next year, and investors will get their first return of cash then, when the more liquid assets have been sold. But it will be a while before investors get back all the money due to them.

The liquidity assessment carried out by the fund and divulged to the regulator, the Financial Conduct Authority, in April this year showed that a third of the fund was in assets that would take six months to a year, or more, to sell off. The portfolio has shifted a bit since then, but it is unlikely to be a quick process.

Investors will also face costs of selling all the assets and winding up the fund. Link, the ACD, has waived the fee it would usually take on the fund from the June suspension, but it’s unclear how much this fee is. Woodford has also continued to take a management fee while the fund was suspended, and the new fund managers, BlackRock and Park Hill, will charge a fee for their services – although it’s again not yet clear how much this fee is. What’s more investors will still be incurring high costs for the winding up of the fund, particularly selling off the illiquid assets. These costs will be taken out of any proceeds from the sale, so will eat into the money investors get back.

At this stage it’s impossible to tell how much money investors will get back. Since the fund shut to redemptions in June and attempted to move to more liquid assets it has lost 15.6% of investor money, while over the past year investors have seen a 27.7% loss.

While no mention is made of Woodford’s other funds, it now seems highly unlikely that he will remain in place as manager of the Patient Capital investment trust, with the board already looking at potential replacements. After launching in April 2015 at 100p the trust is now sitting at 35p – meaning investors who put their money in on day one are seeing a 65% loss.

Woodford Income Focus has also been affected, and has now fallen below £300m in assets, having seen outflows and returned a loss of 20% over the past year. The effect of today’s news means it’s likely that some investors will redeem their cash from this fund too.

Frustratingly for investors, there’s still nothing they can do at the moment. The fund remains closed to redemptions and investors will now have to wait to see how much of their money they get back and how long it takes to wind up the assets.

These articles are for information purposes only and are not a personal recommendation or advice.