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Woodford Under Close Watch by U.K. FCA to Fix Fund Problems

Woodford Now Has The U.K. Regulator Watching His Fund Plan

(Bloomberg) -- The British financial services regulator is keeping a close eye on Neil Woodford’s funds after he froze withdrawals from his flagship investment pool, and said it’s inquiring about some of the high-profile investor’s activities in Guernsey.

Woodford’s move to halt redemptions this week was essential to prevent a messy situation in markets, as investors fled the fund while the money manager tried to exit hard-to-sell investments, Andrew Bailey, chief executive officer of the Financial Conduct Authority, said in a Bloomberg TV interview.

The FCA subsequently said it’s in close contact with the fund’s corporate director, Link Fund Solutions Ltd., as well as the International Stock Exchange in Guernsey over the move to list certain of the fund’s assets on the island’s exchange. Woodford attempted earlier this year to reduce his flagship fund’s holdings of unquoted securities by listing them in the crown dependency, according to reports by Citywire and the Financial Times.

“Where the FCA believes there are circumstances suggesting serious misconduct or non-compliance with the rules it may open an investigation,” the regulator also said.

‘Orderly’ Withdrawals

The FCA said the suspension shouldn’t last any longer than is needed for Woodford to build up adequate liquidity to handle any future requests from investors to withdraw funds.

Now, Woodford has the time and flexibility to fix the problems in “as orderly a way as possible,” Bailey said on Bloomberg TV. “That’s what the FCA will be obviously closely watching and involved in where we think is necessary.”

“I know investors say ‘that has restricted my options,’ but I would counter that by saying the alternative would have been much more disorderly,” Bailey said.

The withdrawal freeze had drawn criticism from a U.K. local authority that wants to pull its pension fund’s money. Kent County Council’s investment was valued at 263 million pounds ($334 million) at the end of April, according to a statement from the council.

The troubles at the LF Woodford Equity Income Fund come as regulators debate restrictions on funds that hold stakes in securities that are rarely traded or are hard to sell. Woodford’s mutual fund had unusually large stakes in unlisted biotechnology companies.

Funds should be allowed to make such investments, but regulators and the industry must do more to ensure that investors have an easy way of exiting funds when they desire, without spreading panic in markets, Bailey said.

“Ten years ago, we were dealing with the problem of banks that were too big to fail,” Bailey said. “Of course, we don’t want funds that are too big to fail.”

To contact the reporter on this story: Silla Brush in London at sbrush@bloomberg.net

To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Keith Campbell, Marion Dakers

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