Editor: Woodford is a war of attrition
What do World War I and the Neil Woodford debacle have in common? Not much really. But either way, there were strong assurances that it would all be over by Christmas.
In western France in 1914, the deployment of the modern machine gun and the pain of trench warfare that brought about stalemate soon put an end to this suggestion. In this last example, a little less bloody, illiquidity remains the real stick in the mud.
Here’s what Link Fund Solutions – the administrator of Woodford Investment Management’s UK Equity Income Fund (WEIF) – said on September 23, 2019, three months after WEIF was suspended on June 3.
“We anticipate that the trading suspension will likely last until early December while we implement the portfolio repositioning strategy so that the fund is reopened at that time, and which is conditional on achieving the target fund.” It said.
“In our view, this is a realistic time frame for Woodford to complete a measured and orderly repositioning of the Fund’s asset portfolio ensuring that there is adequate liquidity while preserving or achieving the value of the assets.”
Waiting for Woodford
Precisely 17 months later, on February 23 of this year, an investor was frustrated.
“The wheels seem to be turning very slowly,” they wrote on the MoneySavingExpert forum for Woodford investors, not on the issue of liquidity. in itself, but the pace of legal action against Link and Hargreaves Lansdown, and the likelihood of compensation payments. As for liquidity itself, payments from the troubled fund have begun, but progress has stalled.
New pursuits are also popping up all the time. Just last week fund manager Woodford was named in reports of a new lawsuit filed by law firm Harcus Parker, which is one of several ambulance chasers seeking repair on behalf of disappointed customers.
What a good old mess, and one that soon shows no signs of solving. For what it’s worth, Link’s current estimates of the liquidation period may still be wildly inaccurate.
“Link has indicated that the liquidation process may even continue into 2023, causing investors misery,” said Ryan Hughes, head of active portfolios at AJ Bell. In a way, I suspect Hughes is nice.
“Over the past three years, investors have received four payments totaling £2.54 billion. But the last of them was back in December 2020, with Link clearly struggling to offload the remaining nine highly illiquid companies – including the notorious Atom Bank – at a reasonable price.
Obvious in hindsight
So what are the lessons? Yes, all the much-vaunted things about the inherent unsuitability of high-risk funds for retail investors apply. The same applies to reflections on the promotion of financial instruments. My profession is also partly to blame, if you’re happy to call it one.
This week, in an interview with journalist and investment author Robin Powell hosted by The investment fair, two seasoned hacks have given their opinion. They both wrote books about the Woodford case and spent months figuring out what was wrong.
Financial News asset management correspondent David Ricketts wrote When the fund stopsfollowing Woodford’s rise and eventual fall in 2019. He was surprised to learn how easily Neil Woodford climbed onto Hargreaves Lansdown’s ‘best buy’ lists, despite most of his background in a completely different company (Invesco), on a completely different mandate (non-illiquid companies).
“After talking to people who worked at Hargreaves Lansdown in researching my book, it was expected to continue doing what it was doing,” he says.
“Now if you go talk to another new money manager coming to market, they’ll tell you they have to go through a lot of steps before they get on a best buys list. You need a history of at least three years before you even get tested. Launching a fund shouldn’t just be seen as a continuation of what you’re doing at your old store.
Owen Walker is the FinancialTimes‘ European correspondent bank and author of the Woodford talk Built on a lie, published last spring. Like Ricketts, he questions how Woodford funds were promoted, but also highlights the cult of personality surrounding star managers, and how journalists get sucked in.
“This culture really came out in the 80s, 90s and early 2000s,” he says.
“We are all financial journalists. You go in and you write about the numbers, but you want a character, you want a story, you want color in there. Neil Woodford provided that in spades.
“He was down to earth in many ways. He was a multi-millionaire. He lived a lifestyle that we could imagine if we got into the money: he bought fast cars, big places in the countryside, and later he adopted a lifestyle of fast horses. […] The way he spoke to reporters was a fact [though]. He could explain what his portfolio was, what his strategy was, in very simple terms.
“It’s really stood out, compared to some of the more stuffy, bookish fund managers we’re used to dealing with. The financial press has certainly built it. […] I think he really believed his own press. In the final days of his own business, he was convinced and determined – after talking to people he worked with – that his journey would lead him to success.
I really buy this point, because I am guilty of it myself. The first one already article I wrote for a financial publication highlighted the opinions of a certain Mr. Neil Woodford. Not about his funds though. About Brexit, about all things. It’s sobering to think about how much writing this story mattered at the time. These days, no one cares. They just want their money back.
Prosecuted or exonerated
By the way, investors aren’t the only ones getting impatient. Star managers don’t really deserve much sympathy in the post-WEIF era, but spare a thought.
Here’s what Nick Train, founding director and star portfolio manager of Lindsell Train, had to say at an event two weeks ago:
“It has been three years almost a month since the suspension of the Woodford fund and no report of the circumstances has been offered to us,” he said at an event.
“People who participated in this, to a greater or lesser extent, should be prosecuted or exonerated. I can see why people are waiting for this.”
The multiple failures that led to the downfall of Woodford Investment Management therefore continue to curse the entire asset management industry. But no one really emerges with much credibility.
The regulator looked very taken with his pants down when Nicky Morgan, then chair of the Treasury Select Committee, asked why he learned of Woodford’s woes not from the man himself but from the news.
For their part, financial advisers who did not come out in time questioned their own suitability assessments. And, as I argued several weeks ago, one large company in particular may not factor Woodford’s reputational damage into its future business plans. As a result, future investors are more afraid of the industry.
As for the poor investors themselves, it might be cruel to be nice to tell them that it might not even be over by Christmas. But that will be little relief, especially if they find out later that it won’t be over by next Christmas either. Or the next.
A revised aphorism, then. We’re often told that if it’s too good to be true, it probably is. In this case, you can reverse this. If it’s a shame it’s over by Christmas, it probably won’t.
Ollie Smith is UK editor at Morningstar