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Woodford Mired Deeper in Crisis as Loyal Backers Turn Away

St. James's Place Severs Ties With Woodford After Fund Halt

(Bloomberg) -- Neil Woodford, “the Oracle of Oxford,” is watching his long, storied career crumble with alarming speed.

A mere two days after Woodford -- perhaps Britain’s most celebrated stock-picker -- stunned the world of finance by halting withdrawals from his flagship fund, his reputation is in tatters. The unraveling gathered pace on Wednesday as some supporters distanced themselves, with one key client who accounted for about 40% of assets at Woodford’s firm severing ties.

What seemed like a sudden reversal of fortunes for the 59-year-old money manager has, in fact, been years in the making. Behind the travails is 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.

“I used to be invested in his funds but then came out when I realized he now has the Midas touch of being invested in companies blowing up,” said S. Srivastava, who invested his own money in Woodford funds for several years until about nine months ago.

St. James’s Place Plc, one of Woodford’s earliest clients when he struck out on his own in 2014, cut its relationship with the money manager on Wednesday. The firm had about 3.4 billion pounds invested in a separate mandate with Woodford’s company, which oversaw 8.6 billion pounds in total as of May 31. That’s down from a peak of about 15 billion pounds in 2017.

Woodford Mired Deeper in Crisis as Loyal Backers Turn Away

Hargreaves Lansdown Plc, another of his major supporters, dropped two of his offerings from its widely followed list of recommended funds. Woodford also attracted the scrutiny of the British financial services regulator, and Morningstar downgraded his Equity Income fund to negative from neutral, saying the strategy is “structurally impaired in its ability to implement its investment process.”

A spokesman for Woodford declined to comment on steps taken by St. James’s Place, Hargreaves or Morningstar on Wednesday.

It’s a remarkable turn for Woodford, whose track record and devotion to Warren Buffett’s long-term investing principles prompted some to compare him to the more famous value investor.

In around 26 years at Invesco Perpetual, Woodford developed a reputation for correctly calling major swings across stocks. He helped build the firm’s assets up to about 33 billion pounds over two decades and with it a loyal following. When he departed in 2014 to set out on his own, he attracted billions of pounds into his new fund, which oversaw 10.3 billion pounds ($13 billion) at the peak in 2017.

In Woodford’s first full year on his own, his flagship fund returned 16%, beating all 50 of its peers tracked by Bloomberg. His views in recent years, such as a bullish stance on Brexit’s impact on the British economy, have helped keep his venture in the spotlight even as returns faltered. But with the world fixated on low fees and shifting to index investing, his fund’s losing streak gave clients a reason to bail.

Woodford Mired Deeper in Crisis as Loyal Backers Turn Away

Woodford uploaded an apology YouTube video on his website and to his more than 30,000 followers on twitter on Tuesday. “I am extremely sorry that we’ve had to take this decision,” Woodford said in the video.

The fund’s bets on unlisted companies are at the heart of his problems.

Unusually for a mutual fund, BenevolentAI Ltd., an unlisted biotechnology company, and Oxford Nanopore Technologies Ltd., which develops technology for molecular detection and analysis, accounted for about 7% of assets at the end of April. And as the fund’s publicly traded investments lost value, the share of the portfolio made up by stakes in non-public companies went up, compounding its liquidity woes.

Investments in unlisted securities are rare for mutual funds. While they offer the allure of potentially higher returns, they also limit a fund manager’s ability to meet daily redemption requests. The stake in BenevolentAI accounts for about 4.5% of the assets in Woodford’s main fund; Oxford Nanopore comes in at 2.6%, according to the firm’s website.

Woodford is “in the process of reducing these illiquid securities to zero,” said Roland Cross, an external spokesman for the money manager. “He’s repositioning the portfolio to make it more plain vanilla and this suspension of redemptions allows him to do that.”

To contact the reporters on this story: Nishant Kumar in London at nkumar173@bloomberg.net;Suzy Waite in London at swaite8@bloomberg.net

To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, Christian Baumgaertel

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