Yahoo Finance Block on withdrawals from Neil Woodford fund extended
Investors will be locked into Neil Woodford’s flagship fund for at least another month after a block on withdrawals was extended.
The Woodford Equity Income Fund – which was valued at £3.7bn at the end of May – will stay closed until the next review deadline of 29 July, preventing hundreds of thousands of customers from accessing their money.
The fund and its corporate director, Link Asset Services, said in a message to investors on Monday the decision to continue with the suspension was “to ensure investors’ interests are protected”. The statement said: “It affords Neil and the team the required time to execute the changes to the portfolio that we have outlined previously, in order to deliver the best possible outcomes for you, our investors.”
Related: Neil Woodford's refusal to budge over fund fees is breathtaking | Nils Pratley
It claimed that when the fund did reopen, it would contain fewer hard-to-sell, unlisted assets. “You will see a much more liquid portfolio but one that reflects the same investment strategy. The portfolio will continue to be focused on undervalued companies but the majority of them will be FTSE 100 and FTSE 250 index constituents.”
On 3 June, Woodford suspended all trading in the £3.7bn fund “until further notice” after being overwhelmed by customer withdrawals. This followed a series of bad stock market bets that had caused the fund’s performance to dive. Woodford was forced to block investors from withdrawing their money and the move gave him time to sell off assets, including unlisted investments, which are difficult to sell quickly.
In a video published on Monday, Woodford stood by his decision to freeze redemptions until the end of July at least. “Of course we understand that people want access to their money,” he said. “They are very frustrated by not being able to deal in the fund, but we are using the time that we now have to execute that strategy in the best possible way that we can to ensure that we get the right outcomes for our investors.”
Woodford also said he believed that he could turn around the fund’s performance after a string of recent investment missteps. “Share prices will correlate with reality sooner or later,” he said. “I hope it’s sooner and I can see a number of things on the horizon that may be the catalyst that our investors are looking for.”
The fund and Link, which administrates the fund, are committed to formally reviewing the suspension at least every 28 days.
Questions have been raised over whether the Financial Conduct Authority (FCA) missed signs that Woodford was in trouble, as the rate of withdrawals from his poorly performing fund gained pace. The final straw came on 31 May, when Kent county council’s pension fund decided to ask for the return of its £263m investment.
The fund was originally suspended to give Woodford time to restructure the fund’s portfolio and, crucially, sell off assets in order to meet redemption requests. According to experts, Woodford will need to build up a sizeable pot of cash in order to meet redemptions when the fund reopens.
On top of the Kent redemption request, Hargreaves Lansdown is reviewing the £600m it has invested via multi-manager funds. Six of Hargreaves’ multi-manager funds have exposure to the Woodford fund.
But too few holdings have been liquidated in the past month to meet the anticipated level of redemption requests. According to reports, Woodford has raised at least £300m by selling stakes.
In the statement, Woodford said the fund would be selling assets “in a timely and orderly way”. It said: “The suspension will be lifted when the fund’s repositioning is complete, with less exposure to illiquid stocks.”
Andrew Bailey, the FCA’s chief executive, said last week that Woodford was “sailing close to the wind” and did not act within the spirit of the rules on the proportion of risky assets in funds before blocking investors from pulling their cash from the fund.
European Union rules cap the amount of illiquid assets an investment fund can have at 10%, while the rest must be listed on an approved stock exchange.
Among the problems facing Woodford was the proportion of unlisted investments in his portfolio. As investors pulled out, Woodford was forced to sell investments in the fund to repay customers. However, the unlisted assets could not be disposed of as quickly as listed shares, meaning that he came close to breaching the 10% rule.
Woodford listed some illiquid assets on the Guernsey stock exchange, allowing the fund to stay within the limit.
Meanwhile, the Bank of England governor, Mark Carney, has condemned investment funds with assets that cannot be sold easily but which offer instant withdrawals as being “built on a lie”.
