Investors could emerge from Neil Woodford debacle with £1B loss, internal analysis reveals
When Link Fund Solutions announced that it is closing Woodford Equity Income Fund permanently and kicking out Neil Woodford, it was implied that investors probably won’t get back everything they entrusted to the fund manager. But nobody knew just how much they would lose.
An internal analysis commissioned by Link suggested that the collective loss could amount to £1 billion — out of a fund last valued at £3.1 billion — Citywire has revealed.
The calculations were made by boutique investment banking firm PJT Park Hill, which has been retained to sell off the fund’s “less easily sold assets” while Black Rock takes charge of the liquid holdings. In the worst-case scenario, investors could be seeing 43% of their remaining cash evaporate.
They reportedly crunched the numbers in October before Link informed investors that the fund won’t reopen — almost as abruptly as when Woodford suspended his flagship fund in June.
Woodford called the decision “one I cannot accept, nor believe is in the long-term interests [of investors],” having worked for weeks scouting buyers who would pay decent amounts of cash to take certain assets off his hands. The stated goal was always to swap out private, illiquid holdings for public stocks and be ready to meet potential redemptions once the fund opens up in December.
If they prevailed, Woodford’s team was confident that investors only need to write off 9% of their remaining investments, according to their own estimates.
But it’s unclear how many of the 300,000 disgruntled clients they expect to keep after investors complained about being blindsided by the initial suspension and having to continue to pay management fees.
“Following the suspension, insufficient progress on the repositioning of the fund meant there was not reasonable certainty when this repositioning would be fully achieved and LFS therefore concluded that it is in the best interests of all investors for the Fund to be wound up on the basis of an ‘orderly realisation’ of the fund’s assets,” Link told the Guardian. “This involves the sale of the fund’s assets over a reasonable period of time – the aim is to avoid a fire sale, balancing the need to generate liquidity and the need to secure a reasonable value for the assets.”
Link, the authorized corporate director of the Woodford Equity Income Fund, expects to shell out the first cash installment to investors by the end of January.
Meanwhile it’s also figuring out what to do with a second fund — Woodford Income Focus Fund — after also freezing that fund last month. Following Woodford’s resignation, Link worried that it may not be able to meet a flood of redemption requests.
For now, Link is favoring two options:
(a) the appointment of an alternative investment manager to replace Woodford, with us continuing to act as the Fund’s ACD; or
(b) transferring the Fund’s assets into another UCITS fund in exchange for investors receiving shares in that fund through a scheme of arrangement.