What has happened?
In 2014 Neil Woodford, through his company Woodford Investment Management, launched the Woodford Equity Income Fund, with the stated investment objective of providing investors with a reasonable level of income together with capital growth.
As an Investment Company with Variable Capital, it was set up to be an Open Ended Collective Investment Fund (‘OEIC’) in which investors would be free to increase or decrease their investment as they wished and at any time.
It was marketed as intended to provide a reasonable level of income together with capital growth.
Link Fund Solutions Limited, as the Authorised Corporate Director of the Woodford Fund, was responsible for it’s day-to-day management. The Woodford Fund is (and was from its inception) subject to the rules of the Collective Investment Schemes Sourcebook (‘COLL’) issued by the FCA.
The COLL rules are intended to safeguard investors and to impose obligations on fund managers and Authorised Corporate Directors to ensure that investments are being managed appropriately. Authorised Corporate Directors such as Link have a legal responsibility to investors to ensure that their investment is managed in compliance with COLL and in accordance with the assurances set out in the Woodford Fund’s prospectus.
A key feature of funds of this sort is that their holdings should be sufficiently liquid to ensure that investors can withdraw their investment, at any time, quickly. To achieve this, COLL prevents such funds from investing more than 10% of their funds in unquoted stocks. For that reason, a typical Equity Income fund will primarily be invested in large, well known stocks which pay dividends and are traded widely and frequently, making them easy to sell if necessary.
The Woodford Fund was criticised repeatedly from 2017 onwards for investing in too many illiquid holdings and trying to side-step COLL. For example, Woodford Investment Management is alleged to have arranged for a number of investments to undertake that they would be listed within twelve months, offering a false picture of the how much of the Woodford Fund could actually be traded. Several high-profile holdings were listed on the Guernsey Stock Exchange. There is no evidence these holdings attracted any trading activity at all.
Evidence provided by Andrew Bailey, then head of the FCA and now Governor of the Bank of England, revealed that Link Fund Solutions had informed the FCA that (shockingly) as at 30 April 2019, only 8% of the Woodford Fund’s assets were capable of being sold within a week. Around two thirds of the Woodford Fund would take more than a month to sell. Investors were left unaware that their ability to redeem their investment and get out of the Woodford Fund was now on a knife edge.
On 3 June 2019, trading in the Woodford Fund was suspended as it was unable to meet redemption requests from investors. Investors who were unable to sell their shares before that date have been held captive ever since. On 15 October 2019, Link Fund Solutions announced that it would not be re-opening any trading within the Woodford Fund. Since then it has become apparent that the assets of the Woodford Fund could not be sold for the value suggested by the price of the shares in the Woodford Fund.
Over £1bn of the Woodford Fund’s alleged value has been lost.
Can I join?
Anyone who held shares in the Woodford Fund after the suspension of trading on 3 June 2019 is eligible to join the claim. That includes shareholders who owned shares through a platform provider, such as Hargreaves Lansdown or Interactive Investor (among many others).
Prior to the issue of court proceedings it is necessary to limit the detail we can provide publicly about the nature of the claims against Link and others. More detail will be provided to our clients in confidential email updates on a regular basis. The primary claims could include:
- A claim that Link breached COLL rules in allowing for too many illiquid investments
- A claim that the Woodford Fund did not follow its stated investment objective in failing to seek a reasonable level of income for investors
- A claim that Link failed to ensure a fair value was placed on the Woodford Fund’s investments,
- A claim that the Woodford Funds assets were not adequately protected and managed, by Link or Northern Trust.
Possible further claims against other entities are also being considered, but it will be understood that it is important that the litigation remains as focused as possible.
Why claim? Why does this matter?
Link, as the ACD of the Woodford Funds, has made millions in fees charged for adopting responsibility for safeguarding investors and ensuring that the Woodford Fund follows the rules. Our clients will allege that it failed adequately to supervise the Woodford Funds. This failure has proved to be catastrophic to those who invested their savings into the Woodford Fund and whose investments were locked into the Woodford Fund at suspension.
As Mark Carney has said, funds of this sort are built on a lie. Investors believe that they can withdraw their money whenever they choose. The management of the Woodford Fund made this practically impossible. Over a year on from the suspension of the Woodford Fund, no one has been held to account for this failure of management.
We have previously brought claims against Link (or Capita Financial Managers as it then was) for similar failures to manage the Arch cru funds.
How much compensation will I get?
Prior to all of the assets of the Woodford Fund being sold it is not possible to say exactly how much investor losses will be. That being said, this claim is likely to be significant. The value of the Woodford Fund has ranged from £4.7bn to £3.2bn. It is estimated that investors will lose between a third and a half of the value of their investments. For many, this will be worth thousands of pounds.
The Arch cru link
The Arch cru investment scandal was described in 2012 by Jeff Prestridge, the respected personal finance editor of the Mail on Sunday, as ‘probably the most damaging affair to hit the retail investment fund management industry since 1996, when Morgan Grenfell fund manager Peter Young was found to have defrauded investors’.
At our previous firm, Harcus Sinclair, the Harcus Parker team acted for investors who chose not to accept a payment from a redress scheme established by the FCA and instead elected to sue Capita Financial Managers for alleged breaches of its duties as ACD. The problems that arose in the Arch cru funds were, though not identical, similar, in that there were serious issues with liquidity which caused the Arch cru funds to be suspended by the FCA, and with the valuation of the underlying assets.
As has recently been pointed out by Ali Hussain in The Sunday Times there are many echoes of the Arch cru scandal in the Woodford affair. Not the least of these is the identity of the Authorised Corporate Director. The ACD of Arch cru was Capita Financial Managers. In November 2017, Link Administration Holdings Limited completed its purchase of Capita Financial Managers and the other companies which were part of the Capita Asset Services division and retained key senior directors such as the Chief Executive and the Managing Director Karl Midl, in whose name most of the correspondence to Woodford Investors on behalf of the Woodford Fund has been sent.