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Britain's best known stockpicker forced to shut down embattled flagship fund

Key Points
  • In a letter to investors Tuesday morning, the administrators of the Woodford Equity Income Fund, run by star manager Neil Woodford, said the fund would be closed down and cash returned to investors at the earliest opportunity.
  • The Woodford Equity Income Fund was suspended in June following a run of poor performance and a sharp increase in investor redemptions.

The U.K.'s most famous fund manager has been forced to wind up his flagship fund after a months-long suspension.

In a letter to investors Tuesday morning, the administrators of the Woodford Equity Income Fund, run by star manager Neil Woodford, said the fund would be closed down and cash returned to investors at the earliest opportunity.

Woodford has also been removed as the investment manager, with the fund set to be renamed.

The letter from administrators Link Fund Solutions (LFS) said the decision came after a careful review of the fund and its holdings.

In a statement, Woodford said: "This was Link's decision and one I cannot accept, nor believe is in the long-term interests of LF Woodford Equity Income fund investors."

The Woodford Equity Income Fund was suspended in June following a run of poor performance and a sharp increase in investor redemptions which took it from £10.2 billion ($12.9 billion) of assets under management at its peak to just £3.7 billion by the end of May 2019.

Woodford Equity Income has returned a 35.9% loss to investors over three years, while the Patient Capital investment trust he also runs has lost 59.21% over the same period. His smaller Income Focus fund has lost 20% over the past 12 months.

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Since the suspension, efforts had been made to reposition the portfolio and offload substantial portions of unlisted and illiquid assets. However, the letter to investors Tuesday revealed that this had "not been sufficient to allow reasonable certainty as to when the repositioning would be fully achieved," which would allow the fund to re-open.

The fund's assets have been split into two parts, the first comprising listed assets which will be managed by BlackRock in preparation for the winding up.

The second part consists of unlisted and highly illiquid assets which will be sold on by LFS with the assistance of specialist brokerage Park Hill.

Adrian Lowcock, head of personal investing at investment platform Willis Owen, called the news "truly shocking."

"We have seen the complete demise of the most famous fund manager the U.K. has seen for years," he said, adding that the collapse will "shake the funds industry to its core."

What next for investors?

LFS has waived its fee on the fund from the June suspension and investors will not be charged direct fees while the fund is being wound up.

"However, investors will still be incurring high costs for the winding up of the fund, particularly selling off the illiquid assets," explained Ryan Hughes, head of active portfolios at investment platform AJ Bell.

"These costs will be taken out any proceeds from the sale, so will eat into the money investors get back."

The winding up will commence in January 2020, at which point investors will get their first increment of cash as more liquid assets will have been sold, Hughes explained, but it will be some time before they get their money back in full.

"The liquidity assessment carried out by the fund and divulged to the FCA (Financial Conduct Authority) in April this year showed that a third of the fund was in assets that would take six months to a year, or more, to liquidate," said Hughes.

"The portfolio has shifted a bit since then, but it is unlikely to be a quick process."