Woodford analysis suggests investors may lose a third of their money

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By Sinead Cruise, Simon Jessop and Carolyn Cohn

LONDON (Reuters) – Investors in British money manager Neil Woodford’s flagship fund could lose more than 1 billion pounds, four times more than had it reopened in December, according to estimates made by his firm before the shock closure of the fund.

The 3 billion pound ($3.84 billion) LF Woodford Equity Income Fund, backed by more than 300,000 investors, many of them small savers, failed because its exposure to hard-to-sell stocks meant it could not meet a flood of redemption requests after a phase of disappointing performance and asset revaluations.

The move to wind down the fund in October following a four-and-a-half month suspension sent shockwaves through the City and marked a stunning reversal of fortune for Woodford, one of the UK’s most high profile investors.

An impact assessment analysis seen by Reuters and dated Oct. 11, four days before administrator Link Fund Solutions suddenly announced it was closing the fund, shows savers facing losses of up to 36% on their investments, according to projections made by Woodford Investment Management.

The losses, which would be realized after a 12-month period of selling the fund’s assets, would be four times greater than the estimated ‘worst case’ scenario foreseen if the fund had reopened in December, the original deadline Woodford was given to meet redemption requests, the documents show.

Although investors won’t know exactly how much they will receive until all the assets have been sold, the vast difference is likely to spark further scrutiny of Link’s handling of the fund’s suspension and its decision to close it.

The assessment included three other projected returns based on the fund reopening in December, the worst of which was a 9% loss reflecting a write-down of the fund’s entire unlisted technology portfolio to zero.

Two other scenarios, based on selling stakes in Industrial Heat and Mafic — among the fund’s biggest unlisted holdings –at 50% and 75% discounts, resulted in total estimated losses of 7.2% and 7.9% respectively, the document showed.

A source familiar with the matter said Link declined an opportunity to review Woodford’s analysis before taking the decision to shutter the fund.

A spokesman for Link, Dan Pike, declined to comment on whether executives had refused to look at the analysis.

The administrator has also declined to supply details on alternative analyses used in its decision-making process, saying that to do so would not be in investors’ interests.

A second source familiar with the matter said it was plausible that investors could end up losing a third of their money.


Link, the legal and regulatory owner of the fund, told investors on Sept. 23 that it was monitoring the repositioning of the fund, with a view to a reopening in December.

But on Oct. 14, Link said it had decided to wind up the fund entirely, ousting Woodford and appointing BlackRock (N:) to sell off the remaining liquid stocks and PJT Partners to dispose of harder-to-sell assets.

In an emailed statement to Reuters, the spokesman for Link said the firm decided to close the fund because it was no longer confident it would be able to reopen until the listed and unlisted assets had all been sold.

“The demand for redemptions at the point of reopening might consume a very large proportion of the liquid assets, risking a renewed suspension and the unequal treatment of investors,” Pike said.

Link declined to comment on the size of the redemptions queue or on whether redemptions were greater than the cash accumulated from disposals made between the fund’s June 3 suspension and Oct. 14.

In a letter dated Oct. 15, Link told investors they would start getting their money back in stages from Jan. 2020. It has not provided estimates on how much savers could receive or how long it might take for all assets to be sold.

The surprise decision to close the fund prompted Woodford to close Woodford Investment Management a day later, impacting investors in two other funds bearing his name.

The Oct. 11 analysis shows the fund had increased its proportion of highly liquid listed assets to 43% from 12%, while the least liquid assets had dropped to 23% from 34%. Link declined to comment on these figures.

In addition, formal bids on a substantial portfolio of illiquid biotech assets were due to be filed to PJT a few days after Link announced the closure of the fund, the first source said, raising questions about the timing of the decision.

A consortium led by life science investor WG Partners has since entered exclusive talks to buy the portfolio for close to 500 million pounds, two sources familiar with the matter said, with one source suggesting WG’s bid reflected a discount of around 20%.

(The story refiles to move extra word in first paragraph.)

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