Neil Woodford & Patient Capital crisis

Ouch.

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Woodford Loses $54 Million Selling Stocks From Frozen Fund

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Pretty much a formality at this point but this sounds like it’s the end of the road for Woodford.

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So now it’s over for the fund too. I doubt the investors who paid management fees while trapped in the funds, after it was frozen, will be happy that it took this long. At the same time, there’s no hope of redemption for Woodford.

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Woodford’s quote

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.

Also the fund being renamed sounds like they don’t really plan on shutting it down, so I can understand why Woodford is so annoyed. He has been removed as the manager, they will sell assets until they can pay everyone back, reopen the fund for withdrawals, change the name, and then I guess let it run under a new manager?

In the FCAs words it’s good for customers because uncertainty has been removed. Ultimately the people who want their money back will now have a clear path regarding how that will happen.

Without being closer to the story it hard to really know where the fault happened. A fund manager isn’t given complete freedom, he did make some extremely poor choices in regards to liquidity but how did the fund end up in that state, why did no one raise the alarm sooner?

I don’t see the Woodford name or brand being trusted after this, in terms of a retail offering at least, which is a shame. As always it’s more long term damage to the financial industry’s reputation. A lot of retail investors has no idea about the locking of a fund or restricting redemption (it also happened during the Brexit vote.)

It’s never a good sight to see a fund shutdown with such sour news.

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It’s good that the investors have a way out but at what cost? Presumably up until now, the fund was able to protect the price of its investments to a certain extent by saying that it would remain open and threatening to walk away from a deal if they couldn’t get a good price. Now buyers know that this is a true ‘fire sale’ and probably won’t have to pay as much to take the investments off the fund’s hands. So I’m worried that the fund’s investors will get back even less than they would have.

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Bit more clarity on what is happening over on CityWire

winding up will commence on 17 January 2020

The fund will be divided into two parts, one comprised of listed assets (Portfolio A) and the other comprised of unlisted and highly illiquid listed assets (Portfolio B).

BlackRock will take control of portfolio A with PJT Partners (Park Hill) taking over portfolio B (these guys are currently looking after the whole portfolio and trying to sell the illiquid parts.)

The fund’s annual management charge…will continue to be taken until the winding up begins in January and used to pay BlackRock and other companies involved in running the fund.

After the wind-up process begins, the charge…will be dropped, though the fund will still incur costs related to the sale of assets, including BlackRock and Park Hill’s fees.

So not zero fees during this time and no estimates on how much BR and PH will be charging.

The regulator said the amount investors will receive will depend on the market value of the underlying assets.

To @alexs point, who would want to buy these assets and when they are around the negotiating table the buyers can push hard knowing the firms involved really don’t have a lot to lose other than getting the job done.

As always read the comments at your own risk. One comment by Guillaume de Villon did stand out though:

On the back of an envelope we have WEIF here, plus patient capital a c£800m fund that has lost some 60% of its share price…so is that loss of around £500m? And, the equity income focus fund was 100p is now around 60p/share. Are we close to £2.5b I wonder?

A £2.5bn loss across of all Woodford’s funds is a pretty damning figure. Puts him in the same legue as WeWork/SoftBank! :joy:

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Pay fees for the privilege of seeing your investment drop by a third whilst being unable to get your money out. MBA students will dwell on this piece of customer service for years to come. :joy:

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Clearly Woodford hasn’t recovered! Now the big question is will active asset management recover?

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Can GI identify say 10 funds - uk equities that tick all theboxes?

It’s not over yet :grimacing:

Second Woodford fund frozen as implosion continues - Yahoo Finance

Edit

And now -

Correction - it’s all over - Woodford is gone.

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I am not so sure. I read a piece of research, just can’t find it anymore, but it concluded that most active managers barely outperformed the market, and if they did it was often a blip rather than consistent. Almost a case of even a broken clock being correct twice every 24 hours.

However, if you included fees then virtually no active manager outperformed the market. People are starting to wake up to this. Add in the Woodford debacle and people will be wary putting their faith in grossly overpaid fund managers.

I think the model of human-driven and high-fee active management is largely broken, back in the era of the “masters of the universe” there was information asymmetry, so you could generate alpha off the back of better insights than your competitors.

Nowadays data is so widely available and commercialised that everyone works on the same data sets. Alpha is thus constantly being decomposed into Beta and real Alpha is more and more difficult to come by, especially through humans.

That’s one reason many asset managers went into alternative, like real assets, as information assymetry still exists there. However, they are less liquid, which Woodford found out to his peril.

I think human active management will be gradually replaced by more algo-trading based on factor analysis, and through this automation fees will be much lower.

The question then is whether that classified as active, or smart beta.

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We are working on an article about this and will share soon.

I see why you invested in us now :slight_smile:

I think except U.S, rest of the world is stil largely inefficient.

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Currently trading at a 46% discount to it’s NAV!

Very little optimism. No one believes they will get a fair deal on the illiquid assets.

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Illiquid, so it’s a buyers market and will likely end up as a fire sale by a distressed seller.

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So now the FT’s digging into the story behind Woodford’s funds and unsurprisingly, the culture was pretty terrible -

His dramatic downfall is about more than a high-powered financier who lost his midas touch. It is a tale of hubris, obstinate conviction and misplaced loyalty. It exposes the flaws of a timid regulator and an industry in thrall to its star performers. Over four months, the Financial Times interviewed dozens of Mr Woodford’s former colleagues, business contacts, clients and friends — and gained access to a trove of confidential documents — to build up a detailed picture of an investor who became a household name, how he fell from grace and how much investor money has been squandered.

Neil Woodford: the inside story of his rise and dramatic fall - FT

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BlackRock sold £50 million of the stock (Provident Financial) on Tuesday, cutting the fund’s stake in the business from 13.4% of the shares to 9%.

Looks like BlackRock are well underway selling off some of the assets now.

The fund giant will reinvest the proceeds in money market funds and FTSE 100 index instruments.

And derisking what it does with the cash from the sale.

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Whether the FCA did enough here or not, there’s some details about their plans to try to reduce the chances of this happening again in this story.

The FCA is widely expected to introduce new legislation in the wake of the Woodford implosion and has already drawn up proposals to establish a fund class for illiquid assets.

In the interview, Bailey indicated retail and institutional investors may need to be separated in future to offer better protection to investors. He described Kent’s request as ‘the very proximate cause’ for the freezing of the fund.

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Ouch, more bad press coming out and it seems Invesco is feeling he burn too.

The short version being Woodford was paid in dividends according to share of ownership, the calculation was done based off financial reports (disclosures) and how much the fund was charging.

It’ll leave a very bitter taste in people’s mouths to hear how little investors where left with given what the fund managers were paying themselves. As always there are two sides to every story but this is additional bad press for fund manager pay.

The UK business of funds house Invesco, where Neil Woodford made his name, has seen its worst monthly outflows in six years.

It’s also interesting to see people punishing Invesco just through association as well. Then again the funds have been losing money over the past few years which doesn’t help.

CityWire have done an excellent write up on the rise and fall.

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