Investment guru Neil Woodford faces a substantial £46 million fine and is prohibited from managing funds for investors, six years following the collapse of his investment fund.
Neil Woodford, a former successful fund manager, has been found guilty of serious misconduct by the UK Financial Conduct Authority (FCA) in relation to the collapse of the Woodford Equity Income Fund (WEIF) in 2019. The FCA's investigation revealed that between July 2018 and June 2019, Woodford and his firm, Woodford Investment Management (WIM), made unreasonable and inappropriate investment decisions that increased the fund's exposure to illiquid assets.
During this period, Woodford disproportionately sold more liquid investments and bought less liquid ones, leaving only 8% of the fund's holdings that could be sold within seven days. This violated City rules that require investors to be able to liquidate their investments within four days.
The FCA's findings also highlighted that Woodford failed to adequately oversee liquidity risks and neglected warnings from the fund's authorized corporate director about liquidity concerns. As a result, the fund's large exposure to illiquid assets made it unable to sell assets quickly enough to meet outflows, leading to its suspension by administrator Link.
Consequences of Woodford's Misconduct
The collapse of the WEIF left thousands of retail investors unable to access their savings, causing widespread public outcry and damaging Woodford’s career reputation irreparably. The FCA concluded that Woodford had a defective and narrowly focused understanding of his responsibilities regarding liquidity oversight, which significantly contributed to the fund’s downfall.
In response to the FCA's findings, Neil Woodford has been fined £5,888,800 and banned from holding any senior management or retail fund management roles. Woodford and WIM have contested these decisions by referring them to the Upper Tribunal, meaning the proposed sanctions are not yet in effect.
The FCA has also secured a £230 million redress scheme for investors stuck in the WEIF. However, the collapse of the fund left some 300,000 investors stranded and left to wait five years to be compensated with a fraction of the capital they had entrusted with the fund manager.
Neil Woodford's Career Before the Collapse
Prior to the collapse of the WEIF, Neil Woodford had a successful 25-year career when employed by Invesco. His funds racked up billions of pounds of investment from retail investors and institutions alike on the back of bumper returns. However, his recent reemergence as a 'finfluencer' with his own investment blog following the failure of WCM Partners in 2021 has been met with scepticism and caution.
In conclusion, Neil Woodford's misconduct involved mismanagement of fund liquidity, poor investment choices that increased illiquid asset exposure, and failure to heed warnings—all culminating in regulatory fines, a ban from senior financial roles, and major damage to his career in financial services. The collapse of the WEIF serves as a stark reminder of the importance of proper fund management and liquidity oversight in the financial industry.
[1] Financial Conduct Authority (2021). Neil Woodford and Woodford Investment Management Limited: Decision notice. [online] Available at: https://www.fca.org.uk/publication/final-notices/neil-woodford-and-woodford-investment-management-limited-decision-notice.pdf
[2] Financial Conduct Authority (2019). Woodford Equity Income Fund: Suspension of dealing. [online] Available at: https://www.fca.org.uk/news/statements/woodford-equity-income-fund-suspension-dealing
[4] Financial Conduct Authority (2021). Neil Woodford and Woodford Investment Management Limited: Statement of objections. [online] Available at: https://www.fca.org.uk/publication/final-notices/neil-woodford-and-woodford-investment-management-limited-statement-objections.pdf
- Despite a successful career at Invesco, Neil Woodford's misconduct, which entailed poor liquidity management, inappropriate investment decisions in illiquid assets, and disregard for warnings, led to regulatory fines, a ban from senior financial roles, and significant damage to his career in business and personal-finance.
- The collapse of the Woodford Equity Income Fund (WEIF), attributed to Woodford's misconduct, caused widespread public outcry as it left thousands of investors unable to access their savings, resulting in a £230 million redress scheme for affected investors.
- In the realm of finance and real-estate investment, the demise of WEIF serves as a pertinent lesson on the importance of responsible fund management, liquidity oversight, and heeding warnings to preserve investors' trust and maintain the integrity of the industry.
