It is almost five years since the Woodford fund was closed, with a warning notice issued two weeks ago against Neil Woodford and the investment manager he founded, over liquidity related failings.
Timed with that announcement came the final notice attached to the authorised corporate director, Link Fund Solutions, which is meant to keep a check on the running of the fund, setting out in full detail where the company went wrong.
It makes for compelling reading.
On June 3 2019, following a request from Kent County Council to redeem its holding in full, Woodford’s flagship Equity Income Fund (WEIF) was suspended, leaving many investors trapped in a fund whose value had deteriorated by almost 70 per cent in the space of two years.
Kent Council was at the time the largest single investor in the fund, managed by Woodford Investment Management, with £237mn (6.5 per cent of NAV) at the end of May 2019.
But as far back as November 20 2017 Link had concerns, saying that Woodford (ie WIM) was “in need of better management of its liquidity”.
Had Link adopted "reasonable and appropriate monitoring metrics, which it failed to do", its trigger threshold for WEIF’s most illiquid assets would have been breached in April and May 5 2018, at least a year before the suspension, and then continuously from July 2018, according to the damning 83-page final notice document issued against Link by the FCA.
This is not the first time the Link business has got into trouble with the regulator.
Under the former name of Capita Financial Managers (CFM) it received a public censure in November 2012 for breaching regulatory rules between June 2006 and March 2009 in connection with failures in its oversight, as ACD, of the CF Arch cru Investment Funds and the CF Arch cru Diversified Funds, according to the final notice.
In November 2017, CFM again received a public censure for breaking rules and failing in its oversight, as operator – managing the investments – of the Connaught Income Fund between between April 7 2008 and September 25 2009. Connaught was suspended in March 2012 and subsequently wound up.
Settlement scheme approved
A High Court judge has now approved a £230mn settlement scheme for the affected WEIF investors, who held investments in the WEIF at the point of suspension.
This figure is short of the £298mn that, according to the FCA, reflected the losses suffered by investors.
Under the terms of the scheme, Link has agreed to pay all its available assets to WEIF, together with a contribution of £60mn by parent company Link Administration Holdings.
The FCA also said that an additional imposition of a financial penalty would have reduced the amount of restitution to investors – £50mn, or £30mn in the event of a settlement – available to be paid by Link.
Instead of imposing the financial penalty, the FCA published the statement of Link’s misconduct and failings in full.
