The UK financial regulator has launched an investigation into Neil Woodford’s decision to press pause on his flagship fund, which has been a big investor in UK biotech.
The Financial Conduct Authority (FCA) is looking into the factors that led to a block on money coming in or going out of the Woodford Equity Income Fund (WEIF) on 3 June, after a drop in confidence led a swathe of investors to withdraw their positions.
Just last week fund supermarket Hargreaves Lansdown decided to close its position in the WEIF, which had made up more than 8% of its high income portfolio.
The size of the fund – which was set up to blend larger, high-yielding companies with smaller, more innovative businesses such as biotechs – has contracted from more than £10bn in 2017 to less than £4bn, with many of the withdrawals taking place in the last several months.
At the time the fund was suspended Woodford said the aim was to revamp the portfolio and reduce the proportion of unlisted and illiquid stocks which make it harder for investors to exit.
The FCA reveals that it first contacted the fund’s legal owner Link Fund Solution about risks in February 2018 over regulatory breaches – specifically when the fund overshot the 10% limit on unlisted securities – in a letter to Treasury Select Committee chair Nicky Morgan.
Morgan has also expressed concern that the fund has been charging management fees in the region of £100,000 from trapped investors, and that the FCA itself had failed be sufficiently alert to the problems at the WEIF.
The FCA confirms the investigation is ongoing but won’t comment any further, and Woodford has said he will be cooperating fully with the probe.
It’s now emerged that investors are also starting to pull out the Woodford Income Focus Fund (WIFF) with assets falling from £500m to £325m according to some reports, and fund shop Fidelity Investment is now blocking its customers from buying new WIFF units.
As the fund concentrates on companies that pay out dividends it has little exposure to illiquid or unquoted stocks, but it seems the fallout from the Woodford Equity Income Fund is starting to spread.
Shares in Woodford’s FTSE 250-listed vehicle, Patient Capital Trust, are now trading at just over £0.54, well down on its annual high of £0.91.