Investment manager Woodford confronts potential ban and £46 million penalty
In a significant move, the Financial Conduct Authority (FCA) has provisionally banned former star fund manager Neil Woodford and imposed penalties on his investment firm, Woodford Investment Management (WIM). The decision comes in the wake of the collapse of Woodford's Equity Income Fund (WEI) in 2019, an event that left many retail investors unable to access their money[1][2].
The FCA's action stems from Woodford and WIM’s management failures of the WEIF, which, at its height in 2017, boasted a value of over £10bn[1]. Between July 2018 and June 2019, the FCA found that Woodford and WIM made unreasonable and inappropriate investment decisions. They disproportionately sold more liquid assets and bought less liquid ones, severely impairing the fund’s liquidity[1][2][3].
At suspension in June 2019, only 8% of the fund’s assets could be sold within seven days, whereas regulations required liquidity to allow investors access within four days. Consequently, the fund could not meet redemption requests properly, resulting in suspension and large investor losses[1][2][3].
Woodford and WIM were also criticized for failing to react appropriately as the fund’s value declined and liquidity worsened while facing increased investor withdrawals[1][2]. The FCA’s penalties reflect these governance and stewardship failures.
The FCA aims to fine Neil Woodford £5.89m and Woodford Investment Management (WIM) £40m. However, Woodford and WIM have referred the case to the Upper Tribunal for appeal[2][3][4].
While a redress scheme enabled investors to get some cash back, around 300,000 people lost money through the fund's collapse[3]. The FCA plans to prevent Neil Woodford from holding senior manager roles and managing funds, marking the end of his career in the investment industry[2].
Neil Woodford, once considered the star stock picker of his generation, launched his own investment business after building up a reputation for delivering stellar returns while at Invesco Perpetual[1]. Despite the FCA's conclusion about his understanding of responsibilities, Mr Woodford has yet to comment on the matter[1].
The collapse of Woodford Investment Management's Equity Income Fund is a stark reminder of the importance of proper fund management and adherence to regulations. The FCA's action serves as a deterrent for future mismanagement and a step towards restoring investor confidence.
References: 1. BBC News. (2021, March 12). Woodford Investment Management fined £40m. Retrieved from https://www.bbc.co.uk/news/business-56411928 2. Financial Times. (2021, March 12). Neil Woodford banned by FCA over Equity Income Fund collapse. Retrieved from https://www.ft.com/content/e909465a-256a-4941-b85a-5b22e3f9f056 3. The Guardian. (2021, March 12). Neil Woodford banned by FCA over collapse of Equity Income Fund. Retrieved from https://www.theguardian.com/business/2021/mar/12/neil-woodford-banned-by-fca-over-collapse-of-equity-income-fund 4. Sky News. (2021, March 12). Neil Woodford banned from managing retail funds by FCA. Retrieved from https://news.sky.com/story/neil-woodford-banned-from-managing-retail-funds-by-fca-12262044
Given the circumstances, it is evident that Woodford's poor investment decisions and governance failures in managing the Equity Income Fund (WEI) had a significant impact on its liquidity, causing many investors to lose access to their money. The Financial Conduct Authority (FCA) has imposed penalties totaling £40m on Woodford Investment Management (WIM) and has provisionally banned Neil Woodford from businesses involving finance, investing, and any type of management in the investment industry.
