The Financial Conduct Authority has decided to fine Neil Woodford and his firm almost £46mn for “failures in their management” of the collapsed Woodford Equity Income fund, while also banning him from running money for DIY investors.
The FCA said it had decided to fine Woodford £5,888,800 and ban him from holding senior manager roles and managing funds for retail investors, while also fining Woodford Investment Management £40mn. Woodford and his firm will contest the FCA’s decisions at an upper tribunal.
Woodford had achieved the status of one of the UK’s ‘star’ fund managers after decades of successfully running income funds.
However, the Woodford Equity Income fund, which had more than £10bn in assets at its peak in 2017, ended up suspending trading in 2019 and ultimately closing thanks to a combination of poor performance and the growing presence of illiquid assets in it.
The regulator had previously issued a ‘warning’ to Woodford, but only last year, while investors trapped in his fund eventually received a settlement in 2023, meaning around three quarters of their losses were recovered.
The FCA has argued that Woodford’s decision to move the portfolio “away from large global companies towards UK companies which were frequently smaller and less well capitalised” in 2017 left the fund vulnerable to liquidity risks.
“The FCA has concluded that between July 2018 and June 2019 [Woodford Investment Management (WIM)] and Mr Woodford made unreasonable and inappropriate investment decisions,” the regulator said.
“They disproportionately sold more liquid investments (those that are easier to sell) and bought less liquid ones over this period. This meant that at the time of suspension, only 8 per cent of the investments held by the Woodford Equity Income fund could be sold within seven days. Under rules in place at the time, investors should have been able to access their funds within four days.
“WIM and Mr Woodford did not react appropriately as the fund’s value declined, its liquidity worsened and more investors withdrew their money. This disadvantaged investors who remained in the fund, compared to those who had withdrawn their investment before the fund was suspended.”
A statement from WIM said: “We strongly disagree with the FCA’s decision to pursue enforcement action against Neil Woodford and WIM and intend to challenge it.”
A lengthy statement from the firm noted: “The FCA’s case focuses narrowly on the events leading up to suspension, ignoring the true cause of the investor losses: Link’s decision to liquidate the Fund in October 2019.”
The FCA had previously found that Link, the fund’s administrator, had failed to properly manage the fund’s liquidity.
Woodford has perpetually claimed Link, the fund’s administrator, was at fault for investor losses, suggesting that had he been allowed to run the fund, he could have recovered its position. Link closed the fund and started to sell the assets in October 2019, however, the process took several years given the number of illiquid holdings bought by Woodford.
Link has previously defended its decision to suspend the fund, with a statement from 2021 noting: “The decision to suspend the fund, which WIM did not object to, was taken to protect all investors in the fund following a sustained period of underperformance and an increased level of redemptions.
“However, insufficient progress was made by WIM, following the suspension, in repositioning the fund to allow it to be reopened, and, as a result, the decision was taken by Link Fund Solutions to move the fund into an orderly windup. This again was considered to be in the best interests of all investors.”
