Shocking news emerged yesterday from the ongoing Woodford funds debacle – the flagship equity income fund is to be shut down. And that decision has been made against Neil Woodford’s will. In fact, he seems furious about the move.
I reckon one question screams out over this: how can Woodford himself be so powerless over what happens to his investors’ money in a fund that he’s supposed to be managing?
Against investors’ interests
Indeed, he said in his own Woodford Investment Management news release yesterday: “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.”
So, who’s this mysterious and all-powerful Link that he refers to? We are talking about Link Fund Solutions, which is owned by Link Group and is the Authorised Corporate Director (ACD) for the Woodford Equity Income fund. It’s referred to in the ‘LF’ of LF Woodford Equity Income Fund.
An ACD has powers under the Financial Conduct Authority (FCA) regulations to operate Open-Ended Investment Companies (OEIC), such as the Woodford Equity Income fund. In essence, an ACD such as Link can establish, operate and, crucially in this case, wind-up regulated collective OEICs such as the Woodford Equity Income fund. The spirit of the regulations surrounding ACDs such as Link means they must protect the interests of investors in a fund and oversee regulatory compliance.
I read in earlier communications from Woodford Investment Management that the corporate side of things had been outsourced to Link and that it was all perfectly normal. And, indeed, that’s true, because many other funds operate with outsourced ACDs. A recent article in the Financial Times reported that at the end of last June, Link operated 96 open-ended funds and 59 alternative funds, “mainly for boutique managers including Odey Asset Management and Lindsell Train.”
Powerless fund managers
What I didn’t fully appreciate before yesterday was how powerless such arrangements leave poor old fund managers such as Neil Woodford and others. The last thing he wants to do is crystallise the losses of his investors when he believes he can put it all right going forward. And how many other funds are sitting in private investors’ portfolios the length and breadth of the country with the potential to go the same way? Many, I suspect!
I think the whole sorry story boosts the case for picking your own shares and holding them individually in a convenient wrapper such as a Stocks and Shares ISA or a Self-Invested Personal Pension (SIPP). Or at least to pick less-complex collective investment vehicles such as index trackers, which simply aim to replicate the performance of a share index such as the FTSE 100 or FTSE 250 without any ‘problematic’ share picking being involved.
And, finally, in a sad footnote, it emerged yesterday evening that Neil Woodford has decided to throw in the towel completely and close down his fund management business.
