The financial backing means a group claim against Link Fund Solutions Limited for alleged mismanagement of the Woodford fund is now under way.

The Woodford Equity Income fund was suspended in June 2019 following an increase in redemption requests which couldn’t be readily met. In October 2019, Link confirmed the £3bn fund would be wound-up with cash returned to investors as soon as possible.

After a year-long investigation into potential claims on behalf of investors in the fund which included analysing WEIF’s investments, liquidity and determining the causes of action, Leigh Day has secured after-the-event insurance (ATE insurance) in relation to its group claim against Link Fund Solutions Limited (Link) on behalf of investors in the fund.

Why this insurance is important

With every court case, there is a chance that the claimants might lose and with this comes the risk that the court might order claimants to pay the costs of the defendants. The ATE insurance serves to protect Leigh Day clients from the risks of having to pay those costs and enables a claim of this size to progress to court.

Leigh Day said it is now in a position to formally launch the claim on behalf of Woodford’s investors.

Leigh Day is bringing a group claim against Link which is the authorised corporate director of the WEIF. This means that it is responsible for managing the fund, which includes ensuring that the fund invests in suitable assets, that it acts in the best interests of its investors, and stays true to the Financial Conduct Authority (FCA) rules and the fund’s prospectus.

Link delegated some of this function to Woodford Asset Management LLP, but under the FCA’s rules, Link remained responsible for ensuring this function was performed properly.

Leigh Day believes that Link was “asleep at the wheel”. It will be alleged that it failed to ensure that the WEIF maintained an appropriate level of risk to match the level of risk which investors had agreed to take on.

It will also be alleged that it failed to ensure that the fund had sufficient liquidity to enable it to meet the likely number of redemption requests. Leigh Day says Link’s alleged failings are a significant factor in why the fund performed as poorly as it did, why it was suspended and why it is now being wound up.

The case against Link

Leigh Day considers that Link’s conduct amounts to multiple breaches of the FCA rules, in particular that the WEIF had a risk-spread that was not appropriate for the fund and it held excessive levels of illiquid and difficult-to-sell investments.

At its peak, in May 2017, WEIF had assets under management of more than £10bn. However, the fund performed very poorly, returning -16.5% in 2018 and -7% in 2019. By the time of its suspension on 3 June 2019, it had a net asset value of £3.61bn.

Taking into account four capital distributions since then, investors are likely to see not more than about  £2.73bn returned to them. This means that in addition to the year-on-year losses suffered while the fund was active, investors’ further losses since the fund’s suspension are in the region of £1bn.

Meriel Hodgson-Teall, Leigh Day solicitor, said: “The events leading up to the collapse of the Woodford Equity Investment Fund are truly shocking, and we feel that it is only right that those responsible are held to account and that individual investors are able to recover their losses.

“We are very pleased to have secured this insurance, which protects our clients from any potential liability for legal costs. This is a huge step for us and means we can now get on with the important work of securing compensation for people who have lost out as a result of investing in the Woodford fund.”