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Neil Woodford's Drama Is Turning Into an Existential Crisis

Neil Woodford's Drama Is Turning Into an Existential Crisis

(Bloomberg Opinion) -- At some point, investors trapped in Neil Woodford’s Equity Income Fund will have the opportunity to withdraw their money. The board of another of the storied stock picker’s funds says it’s preparing a “contingency plan” for what to do when the time comes. In essence, it suggests there’s a chance that Woodford’s business may not survive in its current form once customers have the chance to flee.

Buried deep in Monday’s half-year report for Woodford Patient Capital Trust, which is still trading, is a section with the title “Ongoing economic viability of the Portfolio Manager.” It reads like an obituary-in-waiting:

Where the Portfolio Manager experiences significant redemptions in WEIF leading to a loss of income, it may no longer easily be able to afford the necessary cost base to manage the Company's portfolio effectively.

Woodford is the founder of Woodford Investment Management Ltd., which runs the portfolios for both the flagship WEIF fund and the Patient Capital Trust, which invests in early-stage companies. A devotee of Warren Buffett, he rose to fame during a quarter-century running money at Invesco Ltd.’s U.K. unit before announcing in 2013 he was striking out on his own. The WEIF fund, which was frozen at the start of June after a flood of withdrawals, has about 3 billion pounds of customer cash, according to data compiled by Morningstar. Link Fund Solutions Ltd., which is the administrator of the fund, has said it intends to reopen it for trading in early December.

Now some investors may decide to stick with Woodford, one of the U.K.’s best-known stock pickers until his newfound enthusiasm for unlisted securities got him into trouble. He repeated on Monday his belief that his investment strategy “will ultimately reward the patient investor.” But given that before being frozen his main fund had lost more than 20 percent since the start of the year, the redemption requests once the gate is lifted are likely to be sizeable.

The listed investment trust has seen its shares plunge as the value of the assets it holds has slumped, in part because of a review of the fund’s unlisted investments and writedowns at two of its biggest holdings.

Neil Woodford's Drama Is Turning Into an Existential Crisis

Whatever happens, it’s increasingly likely that Neil Woodford’s days of running his current stable of portfolios are numbered. The board of the Patient Capital fund this week repeated comments from earlier in the year that it’s held “discussions with other potential managers,” raising the possibility that at some point Woodford will no longer manage the fund that bears his name. The drama that started in June may become an existential crisis.

To contact the editor responsible for this story: Melissa Pozsgay at mpozsgay@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."

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