Woodford Hit With FCA Warning Notice Over 'Defective' Fund Management

Nearly five years after Woodford Investment Management closed, the FCA has issued a warning notice against its founder and former doyen

Ollie Smith 11 April, 2024 | 11:20AM
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Former star manager Neil Woodford has been slapped with a warning notice over his conduct by the Financial Conduct Authority – nearly five years after both his flagship fund strategies dramatically unravelled.

In a statement this morning, the FCA said Link Fund Solutions, which had been responsible for administering the fund, had failed to act with due care, skill, and diligence, in its management of WEIF. But it also accused Woodford himself of a "defective" approach in running the Woodford Equity Income fund, or WEIF.

"[Mr Woodford] held a defective and unreasonably narrow understanding of his responsibilities for managing the WEIF's liquidity risks," the FCA said, and failed "to pay due regard to the need to ensure a reasonable and appropriate liquidity profile for the WEIF when making investment decisions in the face of ongoing redemptions and net outflows from the WEIF."

Though the statement came in the form of a "warning notice," that is by no means the end of the matter. Such edicts merely serve to confirm that the regulator is on the brink of taking some form of action against an individual or business.

Woodford may now make representations to the FCA's regulatory decisions committee before a final decision on action. Even after that, he can appeal at an upper tribunal hearing.

Last month, retail investors in WEIF were issued the first redress payments, totalling £185.7 million, by Link Fund Solutions. A raft of litigation cases from private investors is also still outstanding.

Woodford Investment Management (WIM) was officially closed in 2019 after a wave of redemptions from its two flagship strategies prompted a liquidity crisis.

At the time, the regulator itself was criticised for only having found out about the severity of the situation after reading a news story online.

Having risen to fame as a fund manager at the fund management firm Invesco, Neil Woodford launched his eponymous business in 2014 with the promise of finding highly-successful contrarian investments.

When things eventually ground to a halt five years later, it was the most significant example in modern UK financial services history of a former "star" fund manager finding themselves humbled on the rocks of mass redemptions, regulatory pressure, and allegations of mismanagement.

In a lengthy statement responding to the warning notice, lawyers acting for Woodford and WIM reiterated that both had been "surprised" by Link Fund Solutions' 2019 decision to gate WEIF, and put blame at the door of Link itself.

"It is striking the FCA's only criticisms of Neil Woodford relate to his involvement in matters relating to the fund's liquidity framework, which was, in fact, Link's responsibility and supervised by the depositary (the depositary is responsible for the safekeeping of the fund's assets and for overseeing the fund’s authorised corporate director) and the FCA," a statement said.

"Even though, as authorised corporate director, Link delegated the daily investment management responsibilities to WIM, it remained the fund manager and retained ultimate responsibility for the running of the fund. As the delegated investment manager, WIM was required to manage the fund in accordance with both the liquidity framework and all the other portfolio constraints set by Link."

Woodford will now challenge the FCA's findings using due process.

"The team at WIM, including Mr Woodford, having not had any prior warning, were surprised by Link's decision to suspend the fund, only being informed on the morning of the suspension," it said.

"Subsequently, the entire WIM team were shocked by Link's damaging decision to liquidate the fund, and that Link took responsibility for the management of that process, as well as the losses that investors suffered as a result.

"However, the FCA's case is that Neil Woodford should have known that Link's liquidity framework was deficient and that he should have challenged it, even though the FCA appeared to have sanctioned the framework and closely monitored it.

"WIM and Mr Woodford disagree with the FCA's findings, which they believe are unprecedented and fundamentally misconceived. The findings will be challenged by WIM and Mr Woodford."

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Ollie Smith

Ollie Smith  is editor of Morningstar UK

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