Former star stock picker Neil Woodford, who managed the infamous £3.7bn Woodford Equity Income fund until its collapse, has been targeted by the regulator for his “defective and unreasonably narrow understanding of his responsibilities” in running the fund.
Woodford and his company made “unreasonable and inappropriate investment decisions”, the Financial Conduct Authority found, and ignored warning signs in the lead-up to the fund’s collapse.
The FCA today revealed it has presented Woodford and his investment management firm with a warning notice statement, in the first steps towards legal action levelled against the manager.
As a warning notice is not a final decision, the FCA’s Regulatory Decisions Committee will now decide what legal action, if any, to take against Woodford and his company.
In addition, the Woodford Equity Income fund’s former administrator, Link Fund Solutions, was criticised by the regulator for failing “to act with due skill, care and diligence” when overseeing the fund.
Woodford became a celebrity for his stock picking, receiving frequent recommendations to be bought from direct investment platforms such as Hargreaves Lansdown, but saw everything come crumbling down after his fund was forced to suspend in 2019 due to severe liquidity issues.
The manager became increasingly interested in esoteric and small companies, to the point where his fund held more of its stock in small AIM companies than FTSE 100 companies by 2019, leading to investors being unable to pull their money out.
Investors who have had their money trapped in Woodford’s suspended fund have been taking legal action to get some cash back, with a scheme finally being proposed at the end of last year by the FCA.
Last month, the scheme was approved by the courts, with former investors in the fund receiving their first settlement payout of £186m.
Today, the FCA said that without Link agreeing to the scheme, it would have fined the firm for £50m.
Woodford and his firm received a range of criticisms from the FCA, stating that he held “a defective and unreasonably narrow understanding of his responsibilities” for managing the fund and “failed to pay due regard to the need to ensure a reasonable and appropriate liquidity profile”.
When problems began to arise, and Link raised concerns about the liquidity of the fund, Woodford then “failed to take adequate steps to satisfy himself that the liquidity framework applied to the fund was appropriate” and “did not exercise adequate oversight”, the regulator said.
Meanwhile, the FCA found that between July 2018 and the fund suspension in June 2019, Link themselves had “failed to manage the liquidity of the fund” and “failed to properly oversee” Woodford’s investment management company,
Woodford’s lawyers, WilmerHale and BCLP, attempted to shift the blame towards Link, noting that the FCA’s “only criticism” was over liquidity issues, which they argued was Link’s responsibility.
“Even though, as authorised corporate director, Link delegated the daily investment management responsibilities to Woodford Investment Management, it remained the fund manager and retained ultimate responsibility for the running of the fund,” his lawyers said.
They added that they would be challenging the finding from the FCA.