Woodford down to earth with a bump as fund is suspended

One of the UK’s most high profile fund managers, Neil Woodford, has suspended trading in his largest fund as rising numbers of investors withdraw their cash; £560m has been taken from the Woodford Equity Income fund over the past four weeks alone, leaving just £3.7bn invested, down from a peak of £10.2bn.

Previously afforded rock-star status for his stock-picking ability, Mr Woodford said after ‘an increased level of redemptions’, investors would not be allowed to ‘redeem, purchase or transfer shares’ in the fund.

Local authority pension funds had previously been supporters of the fund and it was a request from Kent County Council to withdraw £250m that led to the suspension.

Mr Woodford’s firm, Woodford Investment Management, is the biggest investor in Kier Group, the construction and services group which on Monday warned on profits, sending its shares crashing 41%.

‘a canny stock-picker who was happy to defy market convention and produced better-than-average results’

The fund manager said the suspension would give it ‘time to reposition the element of the fund’s portfolio invested in unquoted and less liquid stocks, into more liquid investments’.

The Financial Conduct Authority, the city watchdog, said: ‘The FCA is aware of this situation and in contact with the firms involved to ensure that actions undertaken are in the best interests of all the fund’s investors.’

Advisor Daniel Godfrey, told the BBC that Neil Woodford was ‘one of the finest fund managers that Britain’s ever produced, although clearly he is having a dark and terrible moment.’

Adding that he believed Mr Woodford could bounce back, Mr Godfrey said: ‘There could be a new dawn and it’s not necessarily the end. ‘It’s clearly a very dark and difficult moment for Neil Woodford and his business and there may well have to be a hit to valuations to get rid of some of the unlisted holdings. But from there it’ll still be probably a reasonably big fund.

‘It could well be the case that in five years’ time, we’re looking at it and anyone who bought when it reopens will have had a great performance.’

Mr Woodford worked as part of the UK equities team at investment managers Invesco Perpetual for more than 26 years before launching his own fund five years ago.

In its first year, it gave investors a return of 18% on their money, compared with an average rise of only 2% on the London Stock Exchange at the time.

A ‘liquidity’ crisis comes when a bank’s customers all want their money back at the same time causing it to fail; Neil Woodford’s problems are a fund-management version of that old-fashioned bank run investors have been asking for £10m of their money back a week, but the fund has it invested in a whole series of companies.

To come up with the cash at once, the fund would be forced into a fire sale, resulting in investors getting back less – perhaps much less – than they put in.

Woodford’s choice of investments have turned out to have exacerbated the valuation and liquidity problem – many of the public companies, like Kier, Circassia and Purplebricks, have performed badly, while 10% of the fund is in non-quoted companies.

Selling those shares can be difficult and time-consuming, so the fund has decided to stop the rot and end withdrawals; investors followed Woodford because of his reputation as a canny stock-picker who was happy to defy market convention and produced better-than-average results.

If that reputation is shot – and he has stopped people from accessing their money – then Mr Woodford may struggle to convince investors to return in the future.