Woodford Fund Breached Unquoted Limit 16 Months Ago

A letter from the FCA reveals that it has been in talks with Woodford fund manager since February 2018, but failed to act 

Holly Black 18 June, 2019 | 3:16PM
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The Woodford Equity Income fund first breached the limit on unquoted assets more than a year ago, and had 20% of its portfolio in illiquid holdings in February 2019.

A letter from the Financial Conduct Authority to the Treasury Select Committee reveals that the regulator had been in contact with Link Fund Solutions since February 2018 regarding issues relating to liquidity risks in the Woodford Equity Income fund.

Under Ucits rules the fund is allowed a maximum of 10% of it assets in unquoted and illiquid assets and the FCA was in contact with Link in February and March 2018 about breaches to this limit. 

Link is the authorised corporate director of the Woodford fund, and has already come under fire for not sufficiently holding the manager to account. 

Between April and December 2018, the regulator held monthly monitoring discussions with Link in relation to the deteriorating liquidity position in the fund. The regulator said that as a result, Link revised its risk management measures to ensure it could meet investor redemptions. No further breaches of the limit were reported after this time.


Link split the holdings of the portfolio into four “buckets” depending on how long it would take to sell. In June 2018 it was estimated that 21% of the portfolio could be liquidated within seven days (Bucket 1), a further 24% within 30 days (Bucket 2) and another 30% within 180 days (Bucket 3). The remaining 25% of the portfolio (Bucket 4) would take more than six months to sell.

By April 2019, just 8% of the portfolio could be liquidated within seven days. Some 33% of the fund would take at least six months to sell. Link said that when Bucket 4 accounted for 30% of more of the net asset value of the fund it would act as a trigger to investigate.

The FCA met again with Link after Woodford Equity Income swapped holdings with the Patient Capital Investment Trust and concerns had been raised about the listing of a number of unquoted stocks on the Guernsey stock exchange. The FCA said preliminary inquiries suggest that, in February, the exposure to unlisted securities within the fund was around 20% of its value – double the limit – prior to these listings.

The regulator said the Guernsey stock market TISE had contacted the FCA to discuss the listings but “unfortunately, TISE did not make contact with the areas of the FCA that processes and considers these sorts of requests”.

Redemption requests from the fund on 31 May and 3 June amounted to £296 million – some 8.2% of the Woodford Equity Income fund, which held no cash at the time. This is when Link determined that the fund would be unable to meet redemption requests and should be suspended. The FCA was notified the same day.

The regulator published the letter in response to a number of questions ask of it by MP Nicky Morgan, chair of the Treasury Select Committee. It said it had opened an investigation into the events that led to the suspension but could not comment further. Ms Morgan has also asked Hargreaves Lansdown to respond to questions relating to its links with Woodford Investment Management. 

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About Author

Holly Black  is Senior Editor, Morningstar.co.uk