Published: Thu, June 06, 2019
Markets | By Otis Pena

Trading of Neil Woodford’s flagship fund suspended after investor exodus

Trading of Neil Woodford’s flagship fund suspended after investor exodus

While private equity funds usually raise money before closing a fund for an agreed period lasting years, Woodford's was open-ended, meaning clients could demand their money daily - something that had already raised eyebrows. It holds investments in stock market-listed and private firms.

The rapidly shrinking fund, which has fallen by around two-thirds from its 2017 AUM peak of £10.2bn, has drawn the attention of investment heavyweights and regulators alike, according to the FT.

Mr Woodford said the suspension would buy the firm "time and space" to execute a plan which "is about reducing the fund's exposure to illiquids and unquoteds down to zero".

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Further outflows could have a negative effect on clients still invested in the fund.

While that holding was held in the Woodford Equity Fund, the latest update for the fund does not list Hostelworld as part of its portfolio.

"Following an increased level of redemptions, this period of suspension is meant to protect the investors in the fund by allowing Woodford, as previously communicated to investors, time to reposition the element of the fund's portfolio invested in unquoted and less liquid stocks, in to more liquid investments". As a result of that increased level of redemptions what we were seeing was the stock market in a way anticipating the fact that we would have to be sellers of stocks to meet those redemptions.

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The leader of Kent County Council Paul Carter has played down the impact on Kent's pension fund and the 110,000 scheme members. A council spokeswoman said on Tuesday it was having "ongoing discussions" with Woodford about getting its money back, describing the "gating" decision as "disappointing".

It will now be managed by Columbia Threadneedle Asset Management and RWC Partners.

"As hard a decision as this is, and clearly frustrating for you, our investors, we felt that this was necessary to protect your interests". The fund is down 7.1 per cent year-to-date, while the FTSE All-Share Index has advanced.

Woodford's flagship equity income fund has had a torrid few years, in which it has rarely been out of the news, due to one struggling holding or another, such as online estate agent Purple Bricks, or doorstep lender Provident Financial.

Critics say he tended to keep its unlisted holdings close to the 10 percent regulatory limit for investments in unlisted assets that funds like Woodford's face. This compares to a positive return of 23.6% from the IA UK All Companies peer group and an even higher 28.4% gain from the FTSE All-Share.

Despite this performance, Emma Wall, head of investment analysis at fund supermarket Hargreaves Lansdown, said it would be unlikely to signal the end for Woodford. It is not known how long the ban will remain in place, although sources suggest it will be at least four weeks.

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