Woodford’s Fund Meltdown Pulls in Who’s Who of London Finance

(Bloomberg) -- When Neil Woodford locked his flagship fund in early June, the shock waves spread quickly through the U.K. financial world.

Long-time backers such as St. James’s Place Plc and Hargreaves Lansdown Plc quickly began cutting ties with Woodford to limit the damage to their own firms. The former star manager came under fire from politicians, and the U.K. markets regulator opened an investigation into the events that led to the fund freeze.

Now that the LF Woodford Equity Income Fund is set for liquidation, everyone sucked into the crisis will be counting the costs. Here’s a list of some of the main people and companies affected by Woodford’s meltdown:

Andrew Bailey

The head of the Financial Conduct Authority faced criticism for his agency’s oversight of Woodford’s investment firm. He said Woodford had followed the letter, but not the spirit, of the law, and used the occasion to raise the possibility of reforming the rules for open-ended funds. The shock of the fund freeze didn’t help Bailey’s chances to succeed Mark Carney as governor of the Bank of England, a job for which the FCA chief had been seen as a frontrunner. Bailey’s suggestion that the besieged money manager stop charging fees to investors was firmly rebuffed, raising concerns about his ability to get tough.

Mark Barnett

Woodford’s successor at Invesco Perpetual took over his funds and embraced his investment strategy. Five years on, Barnett is suffering from a similar loss of investors’ confidence. Like Woodford, Barnett increased exposure to smaller companies in recent years, though not to the same extent. About 40% of the holdings in his High Income U.K. Fund were in small- and micro-cap companies in April 2019, up from about 8% in June 2014, according to data compiled by Morningstar.

BlackRock

The administrator of the flagship Woodford fund hired a unit of BlackRock Inc. to prepare the portfolio of listed assets for winding down. BlackRock will begin by trying to sell stakes, using the money to buy money market funds and FTSE 100 index instruments. Another firm, PJT Partners, is helping to unload unlisted and hard-to-sell listed assets.

Mark Carney

The Bank of England governor raised the temperature of the response to Woodford’s suspension of his main fund, declaring in late June that funds that hold illiquid assets and allow unlimited withdrawals are “built on a lie.” In July, Carney said that while Woodford’s decision to lock the fund wasn’t “systemic in nature,” it highlighted the issue of funds offering daily redemptions to clients while holding assets that they can’t quickly sell.

Hargreaves Lansdown

The crisis in Woodford’s fund hit Hargreaves Lansdown hard. The firm, which runs the U.K.’s biggest investment platform, had long been a major supporter of Woodford, and a quarter of its platform customers were exposed to his flagship fund. It acted quickly to contain the damage, dropping platform fees for the fund during the freeze, issuing an apology to clients from CEO Chris Hill and selling its 45 million-pound ($57 million) position in another Woodford fund. The platform’s top executives also gave up their bonuses for this year. The triage strategy seems to have worked: Hargreaves Lansdown attracted 35,000 new clients in the three months through September, up from the year-earlier period.

Kent County Council

The county authority attempted to pull its investment -- valued at 263 million pounds at the end of April -- out of Woodford’s main fund on June 3. That proved to be the last straw for the money manager, who gated the fund the same day, blocking the withdrawal. The council said on Tuesday that a “managed run-down of the portfolio is in the best interests of all the fund’s investors.”

Craig Newman

Newman was head of retail sales at Invesco Perpetual, and left the company shortly before Woodford. As co-founder and CEO of Woodford Investment Management, Newman had a hand in just about everything, including choosing the name.

Northern Trust Corp.

The listed Woodford Patient Capital Trust Plc agreed in September to cede control over new investments to Northern Trust Corp. in exchange for greater leeway in how his listed trust uses money borrowed from the firm. The trust has a 150 million-pound borrowing facility with Northern Trust, from which it had drawn 113.7 million pounds as of Sept. 4.

St. James’s Place

The FTSE 100 wealth manager was one of Woodford’s staunchest backers. It pulled 3.7 billion pounds of its clients’ assets out of Invesco and parked it with Woodford before he’d even opened his new firm. Its decision to sever ties with the money manager days after he had frozen his flagship fund deepened the mood of crisis surrounding Woodford’s firm.

To contact the reporter on this story: Suzy Waite in London at swaite8@bloomberg.net

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

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