Home Money Risk Management Neil Woodford, fund managers, and the systemic danger to the monetary system

Neil Woodford, fund managers, and the systemic danger to the monetary system

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Neil Woodford, fund managers, and the systemic danger to the monetary system

If you have got been watching the Neil Woodford saga unfolding over the previous few weeks, you’ll understand that the results of Woodford being pressured to gate (prevent withdrawals from) his flagship Woodford Equity Income Fund are many diverse and growing in number. The immediate results, of the path, are for the investors presently trapped inside the fund.

They aren’t being handled in particular nicely by way of Woodford, who, having lost them an entire pile of money, is now – in a maddening exemplification of the asymmetric incentives baked into fund control – refusing to reduce the management price on his fund. He made a fortune from fees in his exact days (his equestrian property cost him over £13m earlier than he started on the upgrades); he’s in reality determined to make as much as he can from his awful days, too (the fund is producing round £one hundred,000 in sales an afternoon). It is all insanely annoying.
Woodford has tainted his investment agree with too…

But the miseries don’t forestall there. Next up are investors within the Woodford Patient Capital Trust (LSE: WPCT), its board. According to The Times, one investor inside the trust, Seneca Investment Managers, has been coming near others (possibly consisting of BlackRock, L&G and Quilter) in an try to “pressure adjustments” to the five-individual board with a touch “shareholder activism”.

The board is not visible to be completely independent via the market: the chairwoman, Susan Searle, as soon as ran Touchstone Investments, “a highbrow property commercial enterprise taken over by way of IP Group, an indexed VC company with ties to Mr. Woodford.” Another director is head of a prescription drugs organization 24% owned by way of Woodford finances, and yet another is leader exec of Nexeon, a company wherein the trust is likewise invested.

There is lots of coziness about. The market capitalization of the trust has fallen from £800m in 2015 to an insignificant £530m, and the shares are down 20% since the Woodford Equity Income Fund was close. As a result, final week, the believe was pressured to write down the cost of its keeping via £27m in the future, though they did say that “not in connecting with any sales through every other Woodford mandate”.

Hmmm. Either manner, the shares are notably off their 100p release, and at 58p, they’re trading at a 30% bargain to the said internet asset cost (which may or won’t be correct – the type of unlisted agencies the agree with holds are very difficult to price). It doesn’t stop there.

The Patient Capital Trust business has a knock directly to the investment agree with the enterprise. On the face of it, Woodford’s very public demonstration of why it’s miles a truly bad concept to hold illiquid shares in an open-ended funding automobile ought to be great for the arena – suggesting as it does that everybody interested by the long-term growth on offer from non-public or small agencies ought to certainly get their exposure through a funding trust (one in which you may always promote your shares). But to need to shop for and maintain funding trusts for the long term, you need to consider their directors to protect your capital for you. Has the board of the Patient Capital Trust done that? Not but.

They should not have allowed Woodford swap illiquid property within the income fund for a stake within the accept as true with a few months in the past (too dodgy looking) and that they need to have no longer given in and allowed him to sail so close to the regulatory wind by means of listing some of their pinnacle holdings on the Guernsey alternate to attempt to save the liquidity ratio of the Income Fund (additionally dodgy searching).

Alistair Osborne, writing in The Times, isn’t inspired. Searle he says has been presiding over “a war-ridden board that’s been uncovered as being asleep at the job.” Time for them to make fact out of rumor possibly and sell off Woodford as supervisor of the belief?
…and the reputation of Hargreaves Lansdown

Next up in this miserable game of results is the brand reputation of Hargreaves Lansdown (HL), an enterprise that has got away with overcharging its clients for years (on occasion a bit, occasionally lots) way to its ease of use, reputation because of the champion of the retail investor and amazing customer service. The Woodford debacle isn’t always an excellent look for the firm – nor are the ordinary newspaper articles approximately the bonuses of its bosses.

CEO Chris Hill has, for example, stated that he’s going to defer his bonus until the Woodford fund reopens. But getting his £2.1m slightly later than planned isn’t doing it for investors; they’d choose he scrapped his bonus and had a reflect onconsideration on additionally scrapping exit prices for each person trying to move their cash from his firm. That’s, in particular, the case for the reason that we now recognize that Hargreaves Lansdown have been having everyday calls with Woodford over his liquidity disaster considering the fact that 2017 (in November 2017, it made him promise that he “might make no new investments into unquoted companies”, says the FT). But it still saved his fund on its exceptional purchase listing.

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