Neil Woodford and Woodford Investment Management have been fined £46 million by the FCA for failures in managing the Woodford Equity Income Fund, which collapsed in 2019. The penalties come after a period of poor investment decisions that led to significant losses for investors, with Woodford personally fined £5.89 million and banned from managing retail funds.
Neil Woodford, the former star fund manager, and his investment management firm, Woodford Investment Management (WIM), have been fined £46 million by the Financial Conduct Authority (FCA) for failures in managing the Woodford Equity Income Fund (WEIF), which collapsed in 2019.
The penalties consist of a £5.89 million fine for Woodford personally, alongside a £40 million fine for WIM. In addition to the financial penalties, Woodford has been banned from holding senior management roles or managing funds for retail investors.
The FCA’s findings focus on Woodford and WIM’s management of the WEIF, which saw the fund’s value drop from a high of £10.1 billion in May 2017 to £3.7 billion by the time it was suspended in June 2019.
The suspension, which left around £3.7 billion of assets trapped, came after investors attempted to withdraw their money, citing concerns over the fund’s high exposure to illiquid assets.
The FCA concluded that Woodford and WIM made “unreasonable and inappropriate investment decisions” between July 2018 and June 2019, including disproportionately selling liquid assets and purchasing illiquid ones.
By the time of the suspension, only 8% of the investments could be sold within seven days, violating the rule that investors should have access to their funds within four days.
Woodford and WIM failed to respond appropriately as the fund’s liquidity deteriorated and investors continued to withdraw their money.
The regulator found that the firm did not take sufficient action to mitigate these risks or provide oversight on the fund’s management, particularly its relationship with Link Fund Solutions (LFS), the firm overseeing the fund’s liquidity.
Steve Smart, joint executive director of enforcement and market oversight at the FCA, stated:
“Mr Woodford simply doesn’t accept he had any role in managing the liquidity of the fund. The very minimum investors should expect is those managing their money make sensible decisions and take their senior role seriously. Neither Neil Woodford nor Woodford Investment Management did so, putting at risk the money people had entrusted them with.”
WIM disagreed with the FCA’s findings, asserting that the fund was managed in line with a liquidity framework set by Link Fund Solutions, which the FCA had previously approved.
In a statement, WIM claimed that Link’s actions, particularly the “disorderly fire sale” of assets, were the true cause of investor losses after the suspension.
“We strongly disagree with the FCA’s decision,” said WIM in its response. “Mr. Woodford managed the fund within a framework designed to ensure sufficient liquidity. Neither Link nor the FCA raised concerns or initiated discussions about liquidity management during the five years of managing WEIF.”
Woodford, for his part, denied misleading investors. “We could not have been more transparent about the strategy, what we were doing, and how the fund was made up,” he told City AM.
The collapse of the WEIF has sparked ongoing calls for Woodford to lose his CBE (Commander of the Order of the British Empire), which he received in 2015 for his services to business and investment.
In an open letter to the Honours Forfeiture Committee, both the Woodford Campaign Group and the Transparency Task Force called for Woodford’s honours to be revoked.
Andy Agathangelou FRSA, co-founder of the Woodford Campaign Group, said:
“Given the FCA’s critical judgment of Mr. Woodford, I believe there is no longer a reason to delay making a decision on his CBE. I hope the process is both straightforward and swift.”
The FCA’s ruling, while still provisional, has been met with widespread scrutiny, particularly regarding the broader implications for regulatory oversight in the investment sector.
The case also raises questions about the responsibilities of fund managers to ensure the liquidity of their funds and the transparency of their operations.
