A Star Is Shorn

A Star Is Shorn

over 4 years ago2 mins

The UK’s highest-profile investment manager completed his fall from grace on Tuesday as news broke that he’d been fired from his flagship fund (which would ironically, be liquidated) and shutting down his company 😭

What's going on here?

Back in June, Neil Woodford – a popular “active” manager attempting to deliver his investors market-beating returns – froze their ability to withdraw money from the Woodford Equity Income Fund. Investors had been pulling their cash for 22 straight months due to disappointing performance, and a downgraded rating from research firm Morningstarwas the final straw.

Woodford was forced to freeze withdrawals due to “liquidity” issues: a significant proportion of the fund was invested in shares which were rarely traded, and which therefore couldn’t be easily sold to satisfy investors’ growing clamor for their cash back. The result was a mini-crisis as investors grew nervy about other illiquid funds – like those managed by French bank Natixis’s investment arm H2O.

Woodford’s fund included several illiquid stocks (Source: The Times)
Woodford’s fund included several illiquid stocks (Source: The Times)

Woodford’s fund had been due to reopen in December. Now, however, its administrators have abandoned a relaunch. The fund’s investments will instead be sold, with the money raised distributed to investors from January. But with the value of those investments having fallen 20% since June, many will get back less than they put in 😔

Why should I care?

The “winding-up” decision was largely unexpected, prompting shares of Woodford’s other UK-listed fund, Woodford Patient Capital, to fall 9% on Tuesday. Woodford’s Income Focus Fund was also suspended on Wednesday, causing further turmoil.

The news has broader implications for the investment industry. Broker Hargreaves Lansdown, which plugged Woodford’s fund to its customers, may yet face tough questions, while UK financial regulators are reassessing their rules regarding risky illiquid stocks and bonds.

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Woodford’s demise, importantly, adds fuel to the fire of the “active” versus “passive” investment management debate. Check out Finimize Packs for more on that…

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