Woodford Rejects Calls for Freezing Fees at Suspended Fund

(Bloomberg) --

Neil Woodford rebuffed the City of London’s top regulator, saying he’d keep charging fees to investors even while he forbids them from exiting his flagship fund.

The besieged money manager said he’s doing his job, overhauling the fund’s holdings to enable it to resume normal operations. He stunned markets last week by freezing withdrawals, stoking criticism and client defections from his firm.

“The company will continue to charge the fee as the fund remains actively managed and we focus on repositioning the portfolio,” a Woodford spokesman said in response to Bailey’s comments on Tuesday.

Andrew Bailey, chief executive officer of the Financial Conduct Authority, earlier told the BBC Radio Four’s Today program that Woodford “should consider his position” on fees during the halt in redemptions from the LF Woodford Equity Income Fund. His remarks followed similar requests by Nicky Morgan, chair of the U.K. Parliament’s Treasury Committee, and Hargreaves Lansdown Plc, the investment platform that was a major supporter of the former star fund manager.

The Woodford Equity Income Fund generates about 65,000 pounds ($83,000) per day in fees, which go directly to Woodford Investment Management to provide infrastructure, resources and an operational platform, according to a person familiar with the matter, who asked not to be identified because the details are private.

Behind the travails was a dangerous investment strategy -- one that broke sharply with his long record of picking beaten-down stocks. Instead, he plowed his clients’ money into unlisted companies, functioning in some respects more like a venture capitalist than a traditional mutual fund manager.

The FCA announced that it’s reviewing the fund’s strategies, particularly related to investments in unquoted securities listed this year on a stock exchange in Guernsey.

Bailey said there was no time limit for the suspension, which he called a “sensible safety valve” to prevent a fire sale that would have hurt investors. Clients would get their money back “when the fund is put back into a condition when it can operate in an orderly fashion without disorderly sales,” the BBC reported Bailey as saying.

Bank of England policy maker Michael Saunders also defended the ability of funds to halt withdrawals and said in parliamentary testimony that he didn’t see suspensions as “an inherent problem or something that we need to get rid of.”

Saunders said that while he understands the Guernsey listings were within the rules, “there may be a question as to whether investors are sufficiently aware of those rules.”

Bailey has been called by the U.K. Parliament’s Treasury Committee to explain the FCA’s oversight of Woodford’s funds. Morgan, the committee chair, wrote to Chris Hill, CEO of Hargreaves Lansdown, on Tuesday asking him how many of the firm’s customers are exposed to the Woodford fund. Morgan also asked him to explain the firm’s history of including the Woodford fund on its list of its 50 favorite funds. Spokesmen for the firm weren’t immediately available for comment.

Meanwhile, shares in the Woodford Patient Capital Trust Plc, a separate investment trust managed by Woodford, rose 6.5% at 2:23 in London trading, the first increase after seven days of declines. During the past week, Woodford has been cutting stakes in companies including NewRiver REIT Plc, Purplebricks Group Plc and Kier Group Plc.

--With assistance from Lucca de Paoli.

To contact the reporters on this story: Silla Brush in London at sbrush@bloomberg.net;Suzy Waite in London at swaite8@bloomberg.net

To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, ;Ambereen Choudhury at achoudhury@bloomberg.net, James Hertling, Ross Larsen

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